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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

A valuer is asked to value a startup, Nirvaan Tech Pvt Ltd, which has negative earnings, few tangible assets and no close listed peers, but has detailed five-year projections of cash flows. Which method is most suitable?

The discounted cash flow method under the income approach is most suitable. The startup has negative earnings, few assets and no comparable peers, but has reliable projections, so discounting its future cash flows best captures value.

  1. ADiscounted cash flow method under the income approachCorrect
  2. BNet asset value method
  3. CPrice-to-earnings multiple of peers
  4. DHistorical cost of assets

Explanation

With negative earnings, P/E cannot be used, and with no close peers market multiples are unreliable. Few tangible assets makes the asset method understate value. Reliable projections make DCF under the income approach the suitable method.

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