The Value of the Assets of a Firm Using a Diversification

question 83

Multiple Choice

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:

• A) discounted by investors.
• B) inflated by investors.
• C) completely ignored by investors.
• D) highly valued by investors.

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Definitions:

NPV Method

Net Present Value method, a financial analysis tool used to determine the value of an investment by discounting future cash flows to their present value.

IRR Method

The IRR method, or Internal Rate of Return method, is a financial analysis tool used to evaluate the profitability of an investment by calculating the interest rate at which net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Cost of Capital

The rate of return required by a company to undertake an investment or project, often used as a discount rate in capital budgeting.

Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment, ignoring the time value of money.