Which of the Following Does NOT Always Increase a Company's

question 23

Multiple Choice

Which of the following does NOT always increase a company's market value?

• A) increasing the expected growth rate of sales
• B) increasing the expected operating profitability (nopat/sales)
• C) decreasing the capital requirements (capital/sales)
• D) decreasing the weighted average cost of capital

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Definitions:

Required Rate of Return

The smallest percentage of yearly earnings from an investment necessary to attract individuals or businesses to invest in a certain security or project.

FCFF Valuation Model

The FCFF Valuation Model estimates a company's value by using its Free Cash Flow to the Firm (FCFF), discounting the cash flows to their present value using the weighted average cost of capital.

WACC

Weighted Average Cost of Capital; the average rate of return a company is expected to pay its security holders to finance its assets, integrating debt and equity.

Discount Rate

The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.