General Studies · Business Valuation
Which of the following statements best explains why JStace Plc would prefer to use an earnings-based valuation method over a net assets method to value Foley Co?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The net assets method is only appropriate for companies that are being liquidated or broken up.
- 2The P/E method focuses on the earning potential of the target business, which aligns with the synergy benefits the acquirer aims to achieve.✓
- 3The P/E method is governed by accounting standards, making it more reliable for tax purposes.
- 4The net assets method is more complex to calculate and often results in a higher valuation.
Correct answer
The P/E method focuses on the earning potential of the target business, which aligns with the synergy benefits the acquirer aims to achieve.
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