The Most Important Factor to Be Considered in the Valuation

question 49

Multiple Choice

The most important factor to be considered in the valuation of a closely held firm is _____.

• A) earnings growth
• B) book value of the firm
• C) earnings capacity
• D) the general economic outlook

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Definitions:

Contribution Margin Ratio

A metric that shows what percentage of sales revenue is available to cover variable costs and contribute to fixed costs after all variable expenses have been covered.

Cost Structure

The composition of fixed and variable costs that a company incurs during the production of goods or services, affecting profitability.

CVP Chart

A graphical representation used in Cost-Volume-Profit analysis to show the relationship between costs, volume of sales, and profit.

Major Components

Principal parts or elements that form the larger system or structure.