Which of the Following Statements Is FALSE

question 16

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:

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Discounted Cash Flow (DCF)

A valuation method used to estimate the value of an investment based on its future cash flows, adjusted for the time value of money.

Capital Budgeting Techniques

Methods used to evaluate and prioritize investment projects or expenditures, such as NPV, IRR, Payback Period, and Profitability Index.

Small Businesses

Enterprises characterized by a small number of employees, limited revenue, and size within their industry.