Discounted Cash Flow Approach to Valuation Does Not Work in the Case

question 27

Multiple Choice

Discounted cash flow approach to valuation does not work in the case of options because:

• A) it is possible to but difficult to estimate the expected cash flows.
• B) the estimated cash flows have to be discounted at the opportunity cost of capital.
• C) finding the opportunity cost of capital is impossible as the risk of options change every time the stock price moves.
• D) (B) and (C) above

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Definitions:

Government

The governing body of a nation, state, or community responsible for leadership, policy making, and administration.

Ethanol Program

A governmental policy initiative aimed at promoting the use of ethanol as a biofuel, to reduce dependency on fossil fuels and decrease greenhouse gas emissions.

Imported Ethanol

Ethanol fuel sourced from foreign countries, used primarily as a biofuel additive for gasoline.

Subsidies

Financial assistance granted by a government to support businesses or individuals, aiming to reduce costs and encourage certain economic activities.