Question

The importance of cash flows in the absolute valuation process is most similar to which of the following? a) A student deciding to attend law school, because she forgoes a full- time job today in hopes of a well-paying job in the future b) A government giving a tax break to wind farms, because it values future energy independence more than the cost of the subsidy to encourage alternative energy development c) A fishery exceeding fishing quotas, because it values short-term income more than long-term fishing stock d) A fitness instructor avoiding soda and candy, because he gives up foods he enjoys in order to live a healthier, longer life

Answer 1

Answer: c) A fishery exceeding fishing quotas, because it values short-term income more than long-term fishing stock

Explanation:

Absolute valuation is a valuation method used by businesses whereby the financial worth of a company is determined through the use of a discounted cash flow. Through this, the investors can know whether a stock is either overvalued or undervalued.

Based on the question, thee importance of cash flows in the absolute valuation process is most similar to a fishery exceeding fishing quotas, because it values short-term income more than long-term fishing stock.