Which of the following statements is FALSE?

A. As the enterprise value represents the entire value of a firm before the firm pays its debt, to form an appropriate multiple, we divide it by a measure of earnings or cash flows after interest payments are made.
B. We can compute a firm's price-earnings ratio by using either trailing earnings or forward earnings with the resulting ratio called the trailing price-earnings or forward price-earnings.
C. It is common practice to use valuation multiples based on a firm's enterprise value.
D. Using a valuation multiple based on comparables is best viewed as a "shortcut" to the discounted cash flow method of valuation.

Question

02-08-2019
Business

contestada

Which of the following statements is FALSE?

A. As the enterprise value represents the entire value of a firm before the firm pays its debt, to form an appropriate multiple, we divide it by a measure of earnings or cash flows after interest payments are made.
B. We can compute a firm's price-earnings ratio by using either trailing earnings or forward earnings with the resulting ratio called the trailing price-earnings or forward price-earnings.
C. It is common practice to use valuation multiples based on a firm's enterprise value.
D. Using a valuation multiple based on comparables is best viewed as a "shortcut" to the discounted cash flow method of valuation.

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extensionprenton extensionprenton · Answer 1 · 2019-08-05T22:05:43+02:00

Answer:

The correct answer is option A. "As the enterprise value represents the entire value of a firm before the firm pays its debt, to form an appropriate multiple, we divide it by a measure of earnings or cash flows after interest payments are made".

Explanation:

According to Corporate Finance, the value of an enterprise is not represented by the entire value of a firm before the firm pays its debt. The value of an enterprise is given by the sum of claims of its creditors and shareholders. Therefore in order to calculate the value of an enterprise is necessary to add its market value to its debt, equity, and minority interest.