Various methodologies can be used to develop the fair value of common shares. The most objective methodologies are considered to be:
a.Discounted Cash Flow (DCF) methods.
b.Price Earnings (P/E) methods.
c.Price Earnings Growth (PEG) methods.
d.Price Sales Ratio.
Answer:A
Choice "A" is correct. Discounted Cash Flow (DCF) methods are considered the most rigorous and objective of the valuation methods.
Choice "b" is incorrect. Price Earnings methods are considered less objective than DCF methods. PE methods require estimation of future earnings.
Choice "c" is incorrect. PEG methods are considered less objective than DCF methods. PEG methods require estimation of future earnings and growth rates.
Choice "d" is incorrect. Price sales ratio methods are considered less objective than DCF methods. Price sales methods require estimation of future sales.