When Estimating the Terminal Value of a Venture Using an Equity

question 56

Multiple Choice

When estimating the terminal value of a venture using an equity valuation method, a perpetuity growth equation that uses the capitalization (cap) rate for discounting purposes is often applied. This cap rate is measured as the __________ rate __________ the perpetuity growth rate.

• A)equity discount; minus
• B)equity discount; plus
• C)risk-free; plus
• D)risk-free; minus

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Definitions:

Society

A group of individuals living together in a more or less ordered community with shared laws, traditions, and values.

Equity

The idea that each person receives benefits in proportion to what he or she contributes.

Equality

The state or quality of being equal, especially in status, rights, and opportunities, advocating for fairness and non-discrimination.

Reciprocities

Mutual exchanges of privileges or interactions between parties where each party gives and receives something of value.