The most correct method of valuing a merger candidate is ____.
A) adjusted book value method
B) discounted cash flow method
C) pooling of interests method
D) comparative price-earnings ratio method

Question

Quizplus · Accepted Answer

The most correct method of valuing a merger candidate is the discounted cash flow method, which estimates the future cash flows of the target company and discounts them back to their present value using a weighted average cost of capital (WACC) to account for the time value of money and the riskiness of the investment. This method is considered more reliable than other methods that rely on historical financial data, such as the adjusted book value method or comparative price-earnings ratio method. The pooling of interests method is no longer permitted under generally accepted accounting principles (GAAP) and is therefore not a valid option for valuing a merger candidate.

The Most Correct Method of Valuing a Merger Candidate Is