Series 79 practice questionmediumFairness Opinions
Which of the following valuation methodologies would most likely be used in preparing a fairness opinion?
- AOnly a single DCF analysis to determine intrinsic value
- BOnly book value of the target's assets
- CA combination of DCF analysis, comparable company analysis, and precedent transaction analysis✓ Correct answer
- DA single comparable company multiple applied to revenue
Explanation
Why C — A combination of DCF analysis, comparable company analysis, and precedent transaction analysis
Fairness opinions typically rely on multiple valuation methodologies to establish a range of values, including discounted cash flow (DCF) analysis, comparable public company analysis, and precedent transaction analysis. Using multiple approaches provides a more robust assessment by triangulating value from different perspectives. The financial advisor also considers the implied premiums, historical trading patterns, and any other factors relevant to the specific transaction.
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