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

Expenses that do not change with the level of output or production, such as rent, salaries, and insurance.

Variable Costs

Expenses that fluctuate based on the amount of products or services a company generates.

Break-even Sales

The amount of revenue that a business must generate to cover its fixed and variable costs before starting to realize a profit.

Fixed Costs

Expenses that do not change with the level of goods or services produced by the business, such as rent, salaries, and insurance premiums.