Question #17
Reading: Reading 24 Private Company Valuation
PDF File: Reading 24 Private Company Valuation.pdf
Page: 10
Status: Correct
Correct Answer: B
Question
The capitalized cash flow method (CCM) used in private firm valuation is most appropriate when:
Answer Choices:
A. earnings are growing quickly in an initial period
B. stable growth is expected
C. there are many intangible assets to value
Explanation
The CCM is a growing perpetuity model that assumes stable growth and is in effect a
single-stage free cash flow model. It may be suitable when no comparables or projections
are available and when stable growth is expected. The excess earnings method (EEM) is
useful when there are intangible assets to value. The free cash flow method assumes high
growth in an initial period followed by constant growth thereafter.