A problem with valuing a target using P/E ratios is:
A)the assumption that risk differences between the bidder and target can be captured in the discount rate.
B)the assumption that 'future maintainable earnings' can represent a company's future earnings.
C)the assumption that the risk of the target can be fully captured in the discount rate.
D)all of the given options.

Question

Quizplus · Accepted Answer

The problem with valuing a target using P/E ratios involves all the given options: assuming risk differences can be captured in the discount rate, assuming 'future maintainable earnings' can represent future earnings accurately, and assuming the risk of the target can be fully captured in the discount rate. These assumptions can lead to inaccuracies in valuation.

A Problem with Valuing a Target Using P/E Ratios Is