Which of the Following Is NOT an Advantage of the Valuation

question 4

Multiple Choice

Which of the following is NOT an advantage of the valuation multiple method as compared to the discounted cash flow method?

• A) calculations based upon widely available information
• B) based upon actual stock prices of real firms
• C) does not rely on estimates of future cash flows
• D) takes into account important differences between different firms

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business or personal decisions.

Escalated Commitment

A pattern of behavior in which an individual or group continues to rationalize their decisions, invest additional resources, and follow a failing course of action.

Risky Shift

The tendency for groups to make riskier decisions than the average risk initially advocated by their individual members.

Faulty Hindsight

The misinterpretation or incorrect analysis of past events, often seeing them as more predictable than they actually were.