Which of the Following Is the Correct Method to Use

question 9

Multiple Choice

Which of the following is the correct method to use to calculate firm value using the WACC method?

• A)Discount the expected cash flows based on all-equity financing at the firm's weighted average cost of capital, WACC.
• B)Calculate the expected cash flows for the firm based on the firm's expected capital structure, and then discount them at the overall cost of capital for the firm,
• C)Calculate the expected cash flows for the firm based on the firm's expected capital structure, and then discount them at the firm's weighted average cost of capital, WACC.
• D)Discount the expected cash flows based on all-equity financing at the overall cost of capital for the firm,

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Definitions:

Activity Rate

The predetermined rate used to allocate overhead costs to products or services based on a specific activity measure, such as machine-hours or labor-hours.

Labor-Related Activity

Activities or tasks that directly involve or are associated with the workforce's efforts in the production process or service delivery.

Traditional Costing Method

A costing method that allocates overhead costs to products based on a predetermined rate, usually associated with direct labor hours or machine hours.

Direct Labor-Hours

A measurement of the actual amount of production work done by employees, expressed in hours, not involving indirect labor.