How is value determined using the multiple method?

The multiple method, often utilized in real estate and finance, determines the value of a property or business by applying a market multiple to a financial metric. The correct approach is to use EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiplied by a market multiple to derive the value. The rationale behind this method is that it provides a comparative baseline based on industry standards and expectations concerning similar entities in the market.

Using EBITDA is advantageous because it reflects the operating performance of a business without the influence of capital structure and tax rates, which can vary significantly between companies. By multiplying this operating performance metric by a market multiple, derived from comparable transactions or trading multiples of similar businesses, investors can estimate a fair market value for the business or asset in question.

The other choices represent different methods or concepts that do not align with the traditional approach of using a direct market multiple to determine valuation based on EBITDA. For instance, the option that uses NOI (Net Operating Income) to find value is more suited for real estate assessments based on income-generating properties, while the calculation using revenue may pertain to a different type of valuation approach, likely tied to sales rather than overall business performance.