Why Do Some Buyers Pay More for a Business That

question 17

Multiple Choice

Why do some buyers pay more for a business that what the valuation method illustrates its worth to be?

• A)To avoid start-up costs
• B)Because they like the name of the business
• C)To add start-up costs to their calculation
• D)None of these choices

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Definitions:

Discount Factor

A financial metric used to determine the present value of a future cash flow, discounting it for risk and the time value of money.

After-Tax Discount Rate

A rate used in capital budgeting that takes into account the effects of taxes on the project's cash flows.

Straight-Line Depreciation

A strategy for apportioning the cost of a solid asset over its period of utility in uniform annual portions.

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.