Because continuing value is a very large part of valuation estimate and it is ve
ID: 2743229 • Letter: B
Question
Because continuing value is a very large part of valuation estimate and it is very sensitive to the long-run growth estimates, it is better to:
Use price to earnings ratios to value firms because they are more stable.
Use zero-growth assumption to follow the accounting convseritism rule.
Always reverse-engineer market's growth estimate and use that in valuation.
Do a thorough sensitivity analysis on the growth estimate.
Use price to earnings ratios to value firms because they are more stable.
Use zero-growth assumption to follow the accounting convseritism rule.
Always reverse-engineer market's growth estimate and use that in valuation.
Do a thorough sensitivity analysis on the growth estimate.
Explanation / Answer
Use zero-growth assumption to follow the accounting convseritism rule.
Reason for this is that we can then see what the value of the firm will be if growth is not achieved when valuing a long run estimate.