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The total value of a business is the sum of the values of its operating and...

The total value of a business is the sum of the values of its operating and nonoperating assets. The DCF model valuation includes both operating and nonoperating values. Select one: True False

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Answer #1

FALSE

the first part of the statement is correct. The total value of a business is the sum of the values of its operating and nonoperating assets.

However, the DCF method valuation helps us in valuing the operating assets only. We discount the unlevered cash flows emanating from operating assets only. Once we get the value of operation using DCF method, we then add the market value of non operating assets to it to get the value of the business. Hence, the second part of the statement is not correct. And hence overall, the statement is FALSE.

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