Question #87
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: 31
Status: Unattempted
Correct Answer: B
Question
Which of the following statements about the method of comparables in price multiple valuation is CORRECT?
Answer Choices:
A. It assumes that cash flows are related to fundamentals
B. It values an asset relative to a benchmark value of the multiple
C. It relates multiples to company fundamentals using a discounted cash flow (DCF) model
Explanation
The method of comparables involves using a price multiple to evaluate whether an asset is
valued properly relative to a benchmark value of the multiple. It makes no explicit
assumptions about fundamentals and does not rely on a DCF model.