Several methodologies are used to value target firms, but this chapter concentrates on the two most common methods: the discounted cash flow approach and the market multiple method. The discounted cash flow approach to valuing mergers used in this chapter is considered a$($n$)$ DEBT $/$ EQUITY $/$ PREFERRED residual method because the cash flows are residuals and belong solely to the acquiring firm$$s PREFERRED SHAREHOLDERS $/$ BOND INVESTORS $/$ COMMON SHAREHOLDERS. The discount rate used to value these residual cash flows should be the cost of DEBT $/$ EQUITY $/$ PREFERRED and the discount rate should reflect the risk of the cash flows shown in the merger analysis. That risk is that of the target firm, not that of the acquiring firm or the post$-$merger firm. So$,$ the discount rate used in the merger analysis should be the target firm$$s post$-$merger cost of DEBT $/$ EQUITY $/$ PREFERRED. The market multiple analysis is a method of valuing a target company that applies a market$-$determined multiple to net income, earnings per share, sales, book value, etc. While the DCF approach applies valuation concepts in a precise manner focusing on cash flows, the market multiple analysis is more judgmental.