Question

You mentioned that Precedent Transactions usually produce a higher value than Comparable Companies - can you think of a situation where this is not the case?

a) When the precedents are outdated
b) When the company's financials differ significantly
c) When the economy is in recession
d) When the industry is experiencing a boom

Answer 1

Precedent Transactions usually produce higher values, but this may not be the case when precedents are outdated, company's financials differ significantly, or the economy is in recession.

Step-by-step explanation:

While it is generally true that Precedent Transactions usually produce a higher value than Comparable Companies, there are situations where this may not be the case:

1. When the precedents are outdated: If the precedents being used as a reference are no longer relevant due to changes in the industry or market conditions, they may not accurately reflect the current value.
2. When the company's financials differ significantly: If the financial performance of the company being valued deviates significantly from the comparable companies, it could affect the valuation.
3. When the economy is in recession: During an economic downturn, both precedents and comparable companies may have lower values due to reduced demand and financial instability.