Reading 44: Private Company Valuation-LOS d 习题精选 div, valuation, 2010, discounted, following

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Session 12: Equity Investments: Valuation Models
Reading 44: Private Company Valuation

LOS d: Discuss the three major approaches to private company valuation.

 

 

 

Which of the following approaches to private company valuation uses discounted cash flow analysis?

A) The income approach.

B) The market approach.

C) The asset-based approach.

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The income approach values a firm as the present value of its future income. The asset-based approach values a firm as its assets minus liabilities. The market approach values a firm using the price-multiples from the sales of comparable assets.

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An analyst is valuing a firm’s equity using the price-to-book-value ratio of similar firms. Which of the following is the most likely valuation approach the analyst will use?

A) The market approach.

B) The income approach.

C) The asset-based approach.

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The market approach values a firm using the price-multiples such as the price-to-book-value ratio and price-earnings ratio of comparable assets. The income approach values a firm as the present value of its future income. The asset-based approach values a firm as its assets minus liabilities.

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An analyst is valuing a small private firm that is still developing and has yet to generate any earnings. Which of the following best describes the approach that should be used?

A) An asset-based approach would be used.

B) A market approach based on public comparables would be utilized.

C) Nonoperating assets are not crucial to the firm and should be excluded in any valuation.

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The valuation approach used will depend on the firm’s operations and its lifecycle stage. Early in its life, a firm’s future cash flows may be so uncertain that an asset-based approach would be selected. The price multiples from large public firms should not be used for a small private firm when using the market approach. Although a firm’s nonoperating assets are not crucial to the firm, they should be included in any valuation.