- Without a capitalization rate, the Discounted Cash Flow method cannot be applied to estimate the fair market value of a business.
TRUE FALSE
The capitalization rate is the rate applied by business valuation to convert a single period income into fair market value. It is the Weighted Average Cost of Capital (WACC) which is applied in converting future cash flows into fair market value under the DCF method. The capitalization rate is not required to apply the DCF method. The answer is FALSE.
- To apply the market multiples method, business valuators MUST rely only on comparators listed on stock exchanges within the same country of the business of the business being valued
TRUE FALSE
The application of the market multiple methods such as EBITDA multiples, price-to-book multiples, revenue multiples, etc does not require the comparator firms to be listed only on stock exchanges in the same country as the business being valued. The valuer can identify comparators listed on stock engages in other jurisdictions (international) but must ensure the comparators are in the same business/sector, of similar size, have similar business models, etc and then make adjustments to the parameters to reflect the circumstances of the business being valued. The answer is FALSE.
