Valuation of a firm is crucial for mergers and acquisitions to determine the appropriate purchase price. There are several approaches to valuation, including discounted cash flow, comparable firms, and adjusted book value. Mergers and acquisitions involve forecasting the target firm's future cash flows and valuing the firm based on these projected cash flows discounted at the firm's cost of capital. The key steps are determining acquisition costs, forecasting incremental cash flows, calculating the discount rate, and obtaining the present value of future cash flows to arrive at the target firm's value.