The Terminal Value of a Company Is Based on Which

question 46

Multiple Choice

The terminal value of a company is based on which one of these assumptions?

• A)The growth rate of the future cash flows will exceed the company's WACC.
• B)All future cash flows will be constant.
• C)The cash flows after Time T will diminish on an annual basis.
• D)The cash flows will increase in the future at a constant perpetual rate.
• E)The company will be sold at Time T for the stated terminal value.

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Definitions:

Government Spending

The total amount of public expenditure by a government, including spending on defense, education, public infrastructure, and welfare programs.

Private Investment

The expenditure on capital goods by private sector firms or individuals in order to generate future income or profits, excluding government spending.

Crowding-In Effect

An increase in private sector spending stimulated by federal budget deficits financed by U.S. Treasury borrowing.

Private Investment

Expenditures by private sector entities on capital goods that are used to produce goods or services in the future.