Which of these is the weakest reason to prefer using the Discounted Cash Flow Method over the Multiples Method to value firm A which operates in industry B?

A. There is no rush to arrive at an answer.

B. You believe the other firms in industry B are generally valued by the market at less than their true worth.

C. You think you can accurately project firm A's future cash flows.

D. There are many public firms in industry B similar to firm A.

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24 July, 07:39

Which of these is the weakest reason to prefer using the Discounted Cash Flow Method over the Multiples Method to value firm A which operates in industry B?

A. There is no rush to arrive at an answer.

B. You believe the other firms in industry B are generally valued by the market at less than their true worth.

C. You think you can accurately project firm A's future cash flows.

D. There are many public firms in industry B similar to firm A.

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Answers (1)

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Lena Alvarado · Answer 1

A

Explanation:

Option A does not provide a constructive answer which can guide one in knowing the merits of the Discounted Cash Flow Method over other valuation techniques such as the Mutiples method.

As there is need to generate estimates of future cash flows and cost of capital of capital to enable the determination of the PV of cash flows, there is also need to generate indices such as PER to determine the value of a firm using the Multples method. Thus, none of the methods are easy and does not require time to assimilate properly. On the strength of this, option provides a very weak argument.