Series 79 practice questionmediumValuation Methods
Which of the following is the strongest reason to rely more heavily on a DCF than on precedent transactions?
- AThe target has publicly traded debt
- BComparable transaction data are sparse or stale for the sector✓ Correct answer
- CThe buyer prefers cash consideration
- DThe company uses straight-line depreciation
Explanation
Why B — Comparable transaction data are sparse or stale for the sector
Comparable transaction data are sparse or stale for the sector A DCF can still be built from the target’s projected cash flows even when market evidence is thin. Precedent transactions are useful only when the prior deals are recent, comparable, and based on reliable disclosed information.
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