In Calculating the NPV Using the flOw-To-Equity Approach the Discount

question 20

Multiple Choice

In calculating the NPV using the flow-to-equity approach the discount rate is the:

• A)all equity cost of capital.
• B)cost of equity for the levered firm.
• C)all equity cost of capital minus the weighted average cost of debt.
• D)weighted average cost of capital.
• E)all equity cost of capital plus the weighted average cost of debt.

Understand the dividend payout ratio.

Determine the working capital.

Calculate and interpret liquidity ratios (current ratio, acid-test ratio).

Interpret and calculate financial ratios including acid-test (quick) ratio.

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Definitions:

Invention

The conception of a new product or process combined with the first proof that it will work.

Diffusion

The spread of an innovation through its widespread imitation.

Technological Advance

(1) An improvement in the quality of existing products, the invention of entirely new products, or the creation of new or better ways of producing or distributing products. (2) Any improvement in the methods by which resources are combined such that the same quantity of inputs can be made to yield a combination of outputs that is preferred to any combination of outputs that was previously possible.

Distributing

The process of making goods or services available to consumers, often through various channels.