The Reliability of the Discounted Future Earnings Approach to Valuing

question 105

True/False

The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

---

Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in manufacturing products or delivering services.

Variable Overhead

Costs of production that fluctuate with the level of output, such as utility expenses for machinery, which increase with more extensive production.

Direct Materials

Direct materials are raw materials that are directly traceable to the manufacturing of a product and constitute a significant portion of the product's cost.

Direct Labor-Hours

The full sum of time spent by employees directly engaged in the process of creating products.