When Using the Multiples Analysis Approach to Valuing a Business

question 48

Multiple Choice

When using the multiples analysis approach to valuing a business, one must be aware:

• A) of the presence of a marketability premium that can be sizable.
• B) of the adjusted book value of a business which is the cost of duplicating the assets of the business in their present form as of the valuation date.
• C) of the stock value of similar companies whose shares are not publicly traded.
• D) of the presence of a marketability discount that can be sizable.

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Definitions:

Economic Profits

Profits earned by a company after accounting for both explicit (direct) and implicit (opportunity) costs.

Marginal-Cost Curve

A graph that shows the relationship between the marginal cost of producing an additional unit and the total quantity of the product produced.

Law of Diminishing

A principle stating that as more units of a variable input are added to fixed inputs, the additional output from each new unit of input eventually decreases.

Implicit Costs

The opportunity costs associated with a company's own resources, not directly paid for with cash but are the result of using assets instead of investing them elsewhere.