The Financial Modeling Process Used to Value a Firm Consists

question 16

Multiple Choice

The financial modeling process used to value a firm consists of a series of steps. These include which of the following:

• A) Analyzing the target firm's historical statements to identify the primary determinants of cash flow.
• B) Project three-to-five years (or more) of annual pro forma financial statements. This three-to-five year period is called the planning period.
• C) Estimating the present value projected pro forma cash flows during the planning period.
• D) Estimating the terminal value.
• E) All of the above

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Definitions:

Economic Profits

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs.

Normal Profits

The level of profit that is necessary for a company to remain competitive in the market, often seen as the minimum acceptable return.

Short Run

Refers to a period in economics where certain inputs or resources are fixed and cannot be changed, contrasting with the long run where all factors are variable.

Long Run

A period in which all factors of production and costs are variable, allowing for adjustment to changes in the market or economy.