CPFM Corporate Valuation Methods 3

Question 1

Which valuation approach values a company by comparing it to similar publicly traded firms?

Accepted Answer

Comparable company analysis (trading comps)

Answer

Discounted cash flow

Answer

Liquidation value

Answer

Replacement cost method

Question 2

The EV/EBITDA multiple is preferred over P/E in cross-company comparisons primarily because it is:

Accepted Answer

Capital-structure neutral

Answer

Always lower in value

Answer

Based on net income

Answer

Unaffected by depreciation

Question 3

In precedent transaction analysis, valuation multiples typically include a:

Accepted Answer

Control premium reflecting acquisition prices

Answer

Minority discount

Answer

Liquidity discount only

Answer

Zero premium by definition

Question 4

Which multiple would be most appropriate for valuing an early-stage company with negative earnings?

Accepted Answer

EV/Revenue

Answer

P/E

Answer

EV/EBITDA

Answer

Price/Book based on income

Question 5

When selecting comparable companies, the most important criterion is similarity in:

Accepted Answer

Industry, size, and growth profile

Answer

Stock ticker alphabetical order

Answer

Number of employees only

Answer

Headquarters location only

Question 6

A company trades at an EV/EBITDA of 8x while peers average 12x. This may indicate the company is:

Accepted Answer

Potentially undervalued relative to peers

Answer

Definitely overvalued

Answer

Identical to peers

Answer

Free of any debt

Question 7

What is a key disadvantage of relying solely on comparable company analysis?

Accepted Answer

Market mispricing of peers distorts the valuation

Answer

It requires detailed multi-year cash flow forecasts

Answer

It ignores the equity market entirely

Answer

It cannot produce a valuation range