Series 79 practice questionhardComparable Company Analysis
A peer set contains one company with a significantly higher EBITDA margin due to a temporary licensing windfall. For accurate valuation, which is the best approach?
- AInclude the company with no adjustment
- BRemove all companies with above-average margins
- CUse the mean rather than the median multiple
- DAdjust or exclude the outlier to avoid distorted multiples✓ Correct answer
Explanation
Why D — Adjust or exclude the outlier to avoid distorted multiples
Outliers should be adjusted or excluded to prevent skewed valuation multiples. Including them or using the mean may bias results; using the median helps, but addressing outliers directly is safest.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 995+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Collection, Analysis & Evaluation of Data questions
- What does the terminal value in a DCF model most commonly represent?
- A target’s pro forma income statement after an acquisition should reflect which of the following?
- When analyzing the accretion/dilution impact of a stock-for-stock merger, which pro forma figure is most relevant?
- Which component is NOT used when calculating a company’s weighted average cost of capital (WACC)?
- Which of the following is a common equity value multiple used in peer valuation?
- When projecting unlevered free cash flow in a DCF, which of the following is typically subtracted from EBIT after tax?
- Which of the following adjustments is made when calculating enterprise value from equity value?
- A company’s pro forma balance sheet is being prepared in connection with a highly leveraged acquisition. Which of the…