What Is the Net Value of Common Equity for a Firm

question 39

Multiple Choice

What is the net value of common equity for a firm with 3 million shares issued,1 million shares outstanding,$4 million of retained earnings,$2 million of treasury stock at cost,$1 million in additional paid-in capital,and a $1 par value per share?

• A) $4 million
• B) $6 million
• C) $8 million
• D) $10 million

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Definitions:

Certainty Equivalent Approach

The Certainty Equivalent Approach is a method used in finance to evaluate investments by adjusting uncertain future cash flows to their guaranteed amounts.

Capital Budgeting

The process of allocating resources for significant investments or projects in a company, assessing their potential financial returns and risks.

Opportunity Costs

The cost of choosing one option instead of the next best alternative, representing the benefits missed out on.

Certainty Equivalent Factors

The adjusted value of risky outcomes to reflect the investor's risk aversion, often used in capital budgeting.