Question #38

of 48 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 income approach. B) The market approach. C) The asset-based approach. Stan Bowles works for Marsh Inc. and has been tasked with the valuation of Park Limited, a small private footwear producer. Bowles prepares a valuation report on Park Limited and his report contains the following: Comment 1: Company-specific characteristics such as the quality and depth of management, tax considerations, and shareholders agreements that restrict liquidity mark the main differences between a private and public company. Comment 2: The value of a private company depends on the investor's expectations and investment requirements and could differ from one buyer to the next due to different perception of risk and future potential. Comment 3: To obtain an appropriate discount rate for Park, we have assumed the following: Estimated beta of Park: 0.75 Company specific risk premium: 1.2% Small stock premium: 2.8% Risk free rate: 3% Equity risk premium: 4.5% Comment 4: If we are valuing Park for non-controlling equity interest, a discount for lack of control might be required.