Which of the Following Statements Is False

question 11

Multiple Choice

Which of the following statements is false?

• A) Because the enterprise value represents the entire value of the firm before the firm pays its debt, to form an appropriate multiple, we divide it by a measure of earnings or cash flows after interest payments are made.
• B) We can compute a firm's P/E ratio by using either trailing earnings or forward earnings with the resulting ratio called the trailing P/E or forward P/E.
• C) It is common practice to use valuation multiples based on the firm's enterprise value.
• D) Using a valuation multiple based on comparables is best viewed as a "shortcut" to the discounted cash flow method of valuation.

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Definitions:

Monopoly

A market structure characterized by a single seller that exercises exclusive control over a particular commodity or service, preventing competition.

Oligopoly

A market structure characterized by a small number of firms whose decisions about production and pricing significantly affect each other.

Perfect Competition

A market structure characterized by a large number of small firms, identical products, and no barriers to entry or exit, leading to price determination by market forces.

Market Power

The ability of a firm or group of firms to influence the price of a product or the conditions of the market.