What are the three primary ways to value a firm according to the text?

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BlackTom AI · Accepted Answer

To start, let’s lay out the question: it asks for the three primary ways to value a firm as described in the text, and we’re given four answer choices to evaluate.
Option 1: 'Replacement Cost, DCF, Comparables' — This matches a common trio of firm valuation approaches: replacement cost (what it would cost to replace the firm’s assets), discounted cash flow (DCF) analysis (valuing based on present value of expected future cash flows), and comparables (valuing by looking at similar firms’ valuations). This appears to be the correct set if the text lists those three methods together.
Option 2: 'Sales Price, DCF, Comparables' — Sales price is not typically categorized as a primary valuation method in standard frameworks; it reflects a transaction price rather than an intrinsic or relative valuation approach. DCF and Comparables are valid, but ‘Sales Price’ does not align with the primary methods usually taught, making this option unlikely.
Option 3: 'Replacement Cost, Sales Price, Comparables' — This mixes a valid method (Replacement Cost) and a non-standard item (Sales Price) with a standard method (Comparables). The inclusion of Sales Price again suggests it is not the canonical trio of primary valuation methods.
Option 4: 'Replacement Cost, DCF, Sales Price' — Here we have Replacement Cost and DCF, both valid concepts, but pairing them with Sales Price instead of Comparables substitutes a core relative-valuation approach (Comparables) with a transaction/price-based notion (Sales Price). This mismatch makes the option incorrect.
After weighing each option, the reasoning shows that only Option 1 aligns with the typical trio of primary firm valuation methods discussed in texts, combining replacement cost, DCF, and comparables as the three pillars.
In summary, the incorrect choices fail because they replace or omit one of the standard methods (comparables) with a non-standard or misaligned term (Sales Price) or swap terms that do not represent the conventional trio.
These explanations aim to highlight why each alternate option deviates from the standard framework described in the text and why Option 1 best matches that framework.

MSB-250-300-002 Proctored Final Exam

What are the three primary ways to value a firm according to the text?

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