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These cash flows typically include operating income, tax payments, and changes in working capital and capital expenditures. b) Determining the Discount Rate: The discount rate, often the weighted average cost of capital (WACC), reflects the risk associated with the company’s cash flows.
These cash flows typically include operating income, tax payments, and changes in working capital and capital expenditures. b) Determining the Discount Rate: The discount rate, often the weighted average cost of capital (WACC), reflects the risk associated with the company’s cash flows.
There are three primary approaches under which most valuation methods sit, which include the income approach, marketapproach, and asset-basedapproach. The income approach estimates valuebased on future earnings, using techniques like the discounted cash flow analysis.
This distinction is fundamental as it influences the valuation approach and objectives. Valuation in M&A refers to the process of determining the fairmarketvalue of a company being merged or acquired for guiding financial decisions and negotiation strategies in the transaction.
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