Bezique's offer price is based on the average projected operating profit for how many years?

• A. Two years
• B. Three years
• C. Four years
• D. Five years

Answer: (B)

In this item the key idea is using a multi-year average of operating profit to set the offer price. Averaging over several years helps smooth out year-to-year fluctuations and focuses on what the business is expected to consistently generate, rather than relying on a single year that might be unusually high or low.

Three years is the chosen horizon because it balances reliability with relevance. It’s long enough to smooth out short-term volatility and capture a basic business cycle, but not so long that projections become too uncertain. This makes the average a steadier basis for pricing compared with just the next year, while still staying current.

To apply it, you would take the projected operating profit for three consecutive years, add them together, and divide by three to get the average. That average then informs the offer price, often together with other adjustments or a valuation multiple.