Series 79 practice questionmediumPrecedent Transaction Analysis
Why is it important to adjust the financials of a target in precedent transactions for extraordinary items?
- ATo reflect the buyer’s capital structure
- BTo standardize for differences in share class
- CTo normalize valuation multiples for one-time events✓ Correct answer
- DTo eliminate currency risk
Explanation
Why C — To normalize valuation multiples for one-time events
Normalizing for extraordinary items ensures multiples reflect ongoing performance, not one-off gains or losses. Using unadjusted figures can yield misleading valuation benchmarks.
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