The Flow-To-Equity (FTE) Approach in Capital Budgeting Is Defined to Be

question 33

Multiple Choice

The flow-to-equity (FTE) approach in capital budgeting is defined to be the:

• A) discounting all cash flows from a project at the overall cost of capital.
• B) scale enhancing discount process.
• C) discounting of the levered cash flows to the equity holders for a project at the required return on equity.
• D) dividends and capital gains that may flow to shareholders of any firm.
• E) discounting of the unlevered cash flows of a project from a levered firm at the WACC.

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Definitions:

Activity Base

A measure or factor used for allocating costs to activities, typically driving the amount of expense incurred in producing a product or providing a service.

Service Departments

Units within an organization that provide support services to other departments but do not directly contribute to revenue generation.

Return On Investment

A measure used to evaluate the profitability of an investment, calculated as a ratio of net profit to the initial cost of the investment.

Invested Assets

Assets that are purchased or acquired for the purpose of generating income or appreciating in value, such as stocks, bonds, and real estate.