Valuation questions Flashcards
Which method would give you the highest valuation
It depends.
The precedent transactions method tends to generate the highest valuation because past deal values include a premium paid to the target for the synergies involved in the deal. This premium payment tends to increase the value of the transaction.
Based on the assumptions used in the DCF analysis, this method could also generate the highest valuation. The DCF is very sensitive to assumptions. Hence, optimistic assumptions could generate a high valuation and vice verse.
Which method would give you the lowest valuation?
The LBO analysis tends to generate the lowest valuation.
This is because the LBO represents the lowest amount a financial buyer is willing to pay for a company or project in order to realize the maximum returns possible.
Since there are no synergies involved in a financial buyer acquiring a company or project, they are willing to pay much less than strategic buyers.
Which valuation method would generate the most accurate valuation?
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