Which of the Following Statements About Valuing a Firm Using

question 30

Multiple Choice

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

• A) The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity.
• B) The value of equity is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity.
• C) The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows before the horizon date at the unlevered cost of equity.
• D) The value of equity is calculated by discounting the horizon value and the free cash flows at the cost of equity.
• E) None of the statements above is correct.

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Definitions:

Rubies

Precious red gemstones that are valued for their color, hardness, and rarity.

Opportunity Cost

The potential benefit that one misses out on when choosing one alternative over another.

Trade

The activity of buying, selling, or exchanging goods and services between people, firms, or countries.

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than its trade partners.