A Key Difference Between the APV, WACC, and FTE Approaches

question 39

Multiple Choice

A key difference between the APV, WACC, and FTE approaches to valuation is:

• A) how the unlevered cashflows are calculated.
• B) how the ratio of debt to equity is determined.
• C) how the initial investment is treated.
• D) whether terminal values are added or not.
• E) whether debt effects should be considered.

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Definitions:

Annual Cash Inflow

The total amount of cash received by a company from its operations, investments, and financing activities over the course of a year.

Required Return

The minimum return that investors expect to receive on an investment, considering its risk.

Net Present Value Method

The Net Present Value Method is a financial analysis tool used to evaluate the profitability of an investment by calculating the present value of expected future cash flows minus the initial investment cost.

Future Cash Inflows

Projected future earnings or receipts in cash form, anticipated from investments, operations, or financing.