Which of the Following Statements Concerning the Valuation of Firms

question 37

Multiple Choice

Which of the following statements concerning the valuation of firms using the method of comparables is FALSE?

• A) If two different firms generate identical cash flows, the Law of One Price will imply that both firms have the same value.
• B) Valuation multiples take into account differences in the risk and future growth between the firms being compared.
• C) Comparables adjust for scale differences when valuing similar firms.
• D) Two firms that sell very similar products or offer very similar services will have different values if they are of different sizes.

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Definitions:

Simulation Analysis

Involves the use of mathematical models to predict the outcome of various financial strategies under different conditions.

Cash Break-Even

Cash break-even is the point at which a business's cash receipts equal its cash expenses, indicating the minimum amount of sales needed to cover all cash outflows without considering any profit.

Operating Cash Flow

A measure of the cash generated by a company's normal business operations over a specific period.

Sales Level

The total volume or number of units sold or services rendered over a specific period.