The Capitalized Earnings Approach Determines the Value of a Business

question 19

Multiple Choice

The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

• A) the interest rate that could be earned on a similar risk investment.
• B) the prime interest rate.
• C) the normal rate of return.
• D) the prevailing return of inflation.

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Definitions:

Heuristic

A simple, efficient rule or method used to make decisions, learn something, or solve problems quickly.

Door-In-The-Face Tactic

Multiple-request technique to gain compliance, in which the focal request is preceded by a larger request that is bound to be refused.

Compliance Technique

Strategies used to persuade or influence others to agree with or obey a request or command.

Emotional Tactic

A strategy that uses emotions to influence or manipulate others' decisions or perceptions.