What Are the Three Standard Approaches to Valuation Under Leverage

question 30

Multiple Choice

What are the three standard approaches to valuation under leverage?

• A) CAPM, SML, and CML
• B) APR, FTE, and CAPM
• C) APT, WACC, and CAPM
• D) APV, FTE, and WACC
• E) NPV, IRR, Payback

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Definitions:

Cash Flow Growth

An increase in the amount of money moving in and out of a business over a specific period, indicative of its financial health and operational efficiency.

Loan Principle

The original sum of money borrowed in a loan agreement, which does not include interest or other charges.

Interest Rate

The fraction of a quantity of money that is required as payment for lending it, often stated on a yearly basis.

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, which is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan.