Question #15
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 6
Status: Correct
Correct Answer: A
Question
The multiple indicated by applying the discounted cash flow (DCF) model to a firm's fundamentals is necessarily the:
Answer Choices:
A. justified price multiple
B. result of calculating retention/(required rate of return - growth) for the overall market
C. same as the average industry multiple
Explanation
A justified price multiple is the warranted or intrinsic price multiple. It is the estimated fair
value of that multiple. The question is limited to an individual firm and does not
necessarily apply to the market or an industry.