Question #31
Reading: Reading 19 Equity Valuation - Applications and Processes
PDF File: Reading 19 Equity Valuation - Applications and Processes.pdf
Page: 11
Status: Unattempted
Correct Answer: A
Question
How can we account for different valuations for the same firm from several analysts even if they use the same required returns?
Answer Choices:
A. Valuations are based on the analyst's expectations
B. The analysts may be biased with personal opinions about management
C. Valuation models contain random errors
Explanation
Valuation is based on expectations of future cash flows rather than known values. Each
analyst will build expectations of cash flows from the fundamental data and from other
factors, internal and external, that the analyst believes will affect the firm's performance.