The Best Method to Use to Value a Firm Under

question 2

Multiple Choice

The best method to use to value a firm under a given capital structure when numerous market imperfections (e.g., agency issues, personal taxes, and transaction costs) exist is the

• A)weighted average cost of capital (WACC)method.
• B)flow-to-equity method.
• C)KISS method.
• D)adjusted present value (APV)method.

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Definitions:

Presumed

Accepted as true or valid based on the existing evidence or probability, without requiring proof or further demonstration.

Insurable Interest

A requirement in insurance policies that the policyholder must stand to suffer a financial or emotional loss if the insured event occurs.

Lease

A contract by which one party conveys land, property, services, or the use of assets to another party for a specified time, in return for a periodic payment.

Personal Property

Tangible and intangible assets owned by an individual or business that are not permanently attached to or part of real estate.