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 afterinterest payments are made. B) We can compute a firmʹs price-earnings ratio by using either trailing earnings or forwardearnings with the resulting ratio called the trailing price-earnings or forwardprice-earnings. C) It is common practice to use valuation multiples based on a firmʹs enterprise value. D) Using a valuation multiple based on comparables is best viewed as a ʺshortcutʺ to thediscounted cash flow method of valuation.

Question

Business

Yuliana Michael

28 November, 22:38

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 afterinterest payments are made. B) We can compute a firmʹs price-earnings ratio by using either trailing earnings or forwardearnings with the resulting ratio called the trailing price-earnings or forwardprice-earnings. C) It is common practice to use valuation multiples based on a firmʹs enterprise value. D) Using a valuation multiple based on comparables is best viewed as a ʺshortcutʺ to thediscounted cash flow method of valuation.

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Answers (1)

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Richmond · Answer 1

The false statement is letter "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:

Indeed, the value of a firm represents its value before deducting what the company owes. Though, in order to calculate the correct multiple, specialists tend to divide the debt by a measure of income or cash flows before interest payments go through.