Question #16
Reading: Reading 24 Private Company Valuation
PDF File: Reading 24 Private Company Valuation.pdf
Page: 10
Status: Correct
Correct Answer: A
Question
Which of the following is most accurate regarding the asset-based approach? Of the three valuation methods for private firms, it usually:
Answer Choices:
A. is the most appropriate for going concerns
B. results in the lowest valuation
C. is not difficult to apply
Explanation
The asset-based approach is generally not used for going concerns. Because it is easier to
find comparable data at the firm level compared to the asset level, the income and market
approaches would be preferred to value going concerns.
Because it is difficult to find data for individual intangible assets and specialized assets,
the asset-based approach can be difficult to apply. It generally results in the lowest
valuation because the use of a firm's assets in combination usually results in greater value
creation than each of its parts individually.