For which one of the following situations will the price-to-sales valuation model work but the dividend and cash flow models will not?
A) mature firm with minimal growth opportunities
B) water-powered electric utility company
C) newly-formed biotechnology company with negative earnings
D) top-performing firm in a mature industry

Question

Quizplus · Accepted Answer

The price-to-sales valuation model is suitable for a newly-formed biotechnology company with negative earnings because it does not require the company to be profitable, unlike the dividend and cash flow models which rely on positive earnings and cash flows to value a company.

For Which One of the Following Situations Will the Price-To-Sales