The Most Appropriate Discount Rate to Use When Applying the Operating

question 70

Multiple Choice

The most appropriate discount rate to use when applying the Operating Free Cash Flows model is the firm's

• A) Required rate of return based on the capital asset pricing model (CAPM)
• B) Required rate of return based on the dividend discount model (DDM)
• C) Weighted average cost of capital (WACC)
• D) Historical cost of debt and equity
• E) All of the above are appropriate depending on the situation

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Definitions:

Tenant Farmers

Farmers who rent land for cultivation rather than owning it, often under conditions that can lead to economic disadvantage.

Elaine, Arkansas

A town in the United States known for the Elaine Massacre of 1919, where racial tensions led to a violent conflict and the deaths of many African Americans.

Deputy Sheriff

An officer of the law who serves in the capacity of assisting or acting in place of the sheriff, often involved in law enforcement duties within a county.

African Americans

A term referring to citizens or residents of the United States who have ancestry from the black racial groups of Africa.