Series 79 practice questionmediumPrecedent Transaction Analysis
In a precedent transaction analysis, how can selection bias affect the observed valuation multiples?
- AIt always lowers the calculated average multiple
- BIt eliminates the need for adjustments
- CIt can distort multiples if only successful or large deals are included✓ Correct answer
- DIt guarantees results are comparable across industries
Explanation
Why C — It can distort multiples if only successful or large deals are included
Selection bias arises when only certain transactions are included, such as only large or successful ones, skewing the observed multiples. Ignoring this leads to unreliable conclusions.
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