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CMA Final · Strategic Performance Management and Business Valuation · Business Valuation Methods and Approaches

In the income approach to business valuation, the technique that converts the expected future cash flows of a business into a single present value by applying a risk-adjusted rate is best described as:

The discounted cash flow method is correct. It estimates the business's future cash flows and discounts them at a risk-adjusted rate to obtain present value, which makes it the main income approach technique, unlike asset-based or market-based methods that rely on balance sheet values or comparable prices.

  1. ADiscounted cash flow methodCorrect
  2. BNet asset value method
  3. CGuideline public company method
  4. DMarket capitalisation method

Explanation

The discounted cash flow method forecasts future cash flows and discounts them at a rate reflecting risk to reach present value. Net asset value is an asset-based approach, while guideline public company and market capitalisation use market evidence.

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