Question

Which of the following statements is FALSE?

		A valuation multiple is a ratio of some measure of the firm's scale to the value of the firm.
		Consider the case of a new firm that is identical to an existing publicly traded company. If these firms will generate identical cash flows, the Law of One Price implies that we can use the value of the existing company to determine the value of the new firm.
		Even two firms in the same industry selling the same types of products, while similar in many respects, are likely to be of different size or scale.
		In the method of comparables, we estimate the value of the firm based on the value of other, comparable firms or investments that we expect will generate very similar cash flows in the future.

Answer 1

Ans A valuation multiple is a ratio of some measure of the firm's scale to the value of the firm.

Correct satements are: Consider the case of a new firm that is identical to an existing publicly traded company. If these firms will generate identical cash flows, the Law of One Price implies that we can use the value of the existing company to determine the value of the new firm. Even two firms in the same industry selling the same types of products, while similar in many respects, are likely to be of different size or scale. In the method of comparables, we estimate the value of the firm based on the value of other, comparable firms or investments that we expect will generate very similar cash flows in the future.