Series 79 practice questionmediumPrecedent Transaction Analysis
A banker is constructing a set of precedent transactions but notices that one deal was for a company in bankruptcy. How should this deal be handled in computing median multiples?
- AAssign it extra weight since it is an outlier
- BExclude it completely because it is distressed
- CInclude it but only use its revenue multiple
- DConsider excluding it or treating it separately due to its distressed nature✓ Correct answer
Explanation
Why D — Consider excluding it or treating it separately due to its distressed nature
Distressed transactions can skew valuation multiples and should generally be excluded or analyzed separately. Weighting them equally introduces bias, a common analytical error.
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