CA Final · Advanced Financial Management · Startup Finance
Which statement about the First Chicago method of startup valuation is correct?
The First Chicago method values a startup by estimating its worth under success, survival and failure scenarios, discounting each, and weighting them by assigned probabilities. This gives a probability-weighted valuation rather than relying on one outcome or on asset values.
- AIt values the startup using only book value of net assets
- BIt weights present values of success, survival and failure scenarios by their probabilitiesCorrect
- CIt uses a single best-case exit scenario discounted at the risk-free rate
- DIt values the startup by the replacement cost of its tangible assets
Explanation
The First Chicago method builds three scenarios, typically success, survival and failure, estimates the value under each, and takes the probability-weighted value. It is not based on a single scenario or on net assets.
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