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The quick change oil industry has been in a consolidation phase for about a decade, during which time the number of firms has shrunk from more than 50 to 15. An analyst is evaluating one of the remaining 15 firms as an acquisition target, and has come up with the following estimated acquisition prices:
Under the circumstances, which of these estimates is most likely to represent the ultimate acquisition cost, and why? A. Comparable company, because there is a large enough sample to ensure that valuation is correct, on average. B. Comparable transaction, because a sufficient number of transactions have occurred for intrinsic value to be relatively well-understood by market participants. C. Discounted cash flow (CF), because this considers expectations for the future as well as current data. |