If the Capital Structure Is Stable, and Free Cash Flows

question 19

True/False

If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the horizon date, then the horizon value is calculated by discounting the free cash flows plus the expected future tax shields at the weighted average cost of capital.

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Definitions:

Slope

In mathematics, the slope is the measure of the steepness or the inclination of a line or a segment of a line connecting two points.

Isocost Line

In economics, a line that represents all combinations of a firm’s factors of production that have the same total cost.

Total Cost

The complete expense incurred in the production of a set amount of goods or services, including both fixed and variable costs.

Cost Of Capital

The required return necessary to make a capital budgeting project, such as building a new plant, worthwhile.