In Calculating the NPV Using the Flow-To-Equity Approach the Discount

question 15

Multiple Choice

In calculating the NPV using the flow-to-equity approach the discount rate is the:

• A) all equity cost of capital.
• B) cost of equity for the levered firm.
• C) all equity cost of capital minus the weighted average cost of debt.
• D) weighted average cost of capital.
• E) all equity cost of capital plus the weighted average cost of debt.

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Definitions:

Goodwill

An intangible asset that represents the premium paid over the fair value of the net identifiable assets of a company during an acquisition.

Initial Value Method

An accounting method used to record investments at their acquisition cost.

Noncontrolling Interest

A minority stake in a company that is not large enough to exercise control over its operations or policies.