Which of the Following Is Not True About the Variable

question 74

Multiple Choice

Which of the following is not true about the variable growth valuation model?

• A) Assumes a high growth period followed by a stable growth period.
• B) Assumes that the discount rate during the high and stable growth periods is the same.
• C) Is used primarily to evaluate firms in high growth industries.
• D) Involves the calculation of a terminal value.
• E) The terminal value often comprises a substantial percentage of the total present value of the firm.

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Definitions:

Required Rate

Often used in reference to the minimum acceptable return on investment or the minimum discount rate used in net present value calculations.

Internal Rate of Return

A metric used in financial analysis to estimate the profitability of potential investments, calculated as the rate of return that makes the net present value of all cash flows from a particular project equal to zero.

Initial Investment

The amount of money used to start a project, purchase an asset, or initiate operations.

Cash Inflows

Money or funds entering a business from various sources like sales, investments, or financing.