Bezique's acquisition valuation methodology used what?

• A. Net asset value
• B. 5x average projected operating profit for following three years
• C. DCF with 10-year horizon
• D. Replacement cost

Answer: (B)

In valuation practice for acquisitions, tying value to the target’s expected earning power is common. Bezique used five times the average operating profit projected for the next three years, which is a forward-looking earnings multiple. This approach emphasizes the business’s near-term profitability and the potential to generate earnings, incorporating expectations of performance and possible synergies from the deal. The multiplier provides a straightforward, market-like way to translate projected profits into an acquisition price, making it practical and easy to justify to stakeholders.

Why this fits better than the other methods: directly valuing the target by net assets ignores future profitability and growth; a discounted cash flow with a long horizon relies heavily on many assumptions about long-term performance and discount rates; replacing costs treats the business as if rebuilt from scratch, which misses the value created by ongoing operations and intangible assets.