How Does the Valuation of a Company Vary from the Valuation

question 19

Multiple Choice

How does the valuation of a company vary from the valuation of a project using WACC?

• A)Book values are used as the weights for WACC when valuing a company.
• B)Debt and equity weights are set equal for WACC when valuing a company.
• C)A terminal value is included in the valuation process for a company but generally not for a project.
• D)Debt is not adjusted for taxes when computing the WACC for a company valuation.
• E)The WACC must be set equal to R_M when valuing a company.

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Definitions:

Annual Dividend

The total amount of dividend payments a company makes to its shareholders over a single fiscal year.

Return

The income generated on an investment over a particular period of time, expressed as a percentage of the investment's initial cost.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase a stock, bond, commodity, or other asset at a specified price within a specific time period.

Striking Price

The fixed price at which the holder of an option can buy (in the case of a call) or sell (in the case of a put) the underlying asset.