Homework Answers
The answer is "C" : The chosen peers might not be true competitors, the company might have multiple divisions, and most appropriate competitors might not have P/E multiples.
This is because peer approach to valuation does account for industry context and it does not only focus on the statistics of only one company. Peer groups are often made up of multiple firms in the same industry, however some firms chosen as competitors might not have P/E multiples.
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what are the possible weaknesses of this peer approach to
valuation?
KNOWLEDGE CHECK What are the...
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The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach...
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HW 08 - Stocks and Their Valuation The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value-added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model....
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Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value...
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10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic...
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