The reliability of the discounted future earnings approach to valuing a business depends on making realistic forecasts of future earnings and on choosing the proper present value rate.

Question

Quizplus · Accepted Answer

The reliability of the discounted future earnings approach is dependent on realistic forecasts of future earnings and choosing an appropriate present value rate, as the approach is based on estimating the value of a business based on its expected future cash flows. If these estimates are inaccurate or unreliable, the valuation may not be accurate or reliable either.

The Reliability of the Discounted Future Earnings Approach to Valuing