Market value approach is a valuation used in business which determines value based upon sales of stocks in the stock market.

• A. True
• B. It uses replacement cost
• C. It is based on cash flow projections
• D. False

Answer: (D)

Market value approach relies on current market data to estimate value, using prices or multiples from comparable publicly traded firms or assets. It doesn’t determine value from the replacement cost of assets, nor from projecting and discounting the subject company’s own future cash flows. The idea that value is set by the actual sales of stocks in the stock market is a misrepresentation; instead, you use market prices of comparable companies or market-based multiples to infer value. So the statement is false. For example, valuing a private company might involve taking the price-to-earnings or enterprise value multiples of similar public companies and applying them to the private firm’s metrics.