An Appropriate Guideline to Adopt When Determining the Valuation Formula

question 29

Multiple Choice

An appropriate guideline to adopt when determining the valuation formula to use is:

• A)never use the APV approach.
• B)use APV if the project is far different from scale enhancing.
• C)use WACC if the project is close to being scale enhancing.
• D)Both A and C.
• E)Both B and C.

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Definitions:

Percentage Rise

A measure of how much a quantity increases over a period, expressed as a percentage of the initial value.

Equation of Exchange

An economic formula representing the relationship between the money supply, its velocity, the price level, and the number of transactions in an economy: MV = PQ.

Economy Output

The total value of all goods and services produced by an economy over a specific time period, also known as gross domestic product (GDP).

Equation of Exchange

The Equation of Exchange is an economic identity that relates the supply of money in an economy to the value of goods and services transactions, commonly represented as MV = PQ.