In the APV Approach,why Is the Unlevered Cost of Equity

question 4

Multiple Choice

In the APV approach,why is the unlevered cost of equity used instead of the WACC?

• A)To account for retained earnings risk.
• B)To avoid measuring the impact of debt.
• C)To value the company as if it were all equity financed.
• D)To incorporate the risk of newly issued shares.

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Definitions:

Permanent Structures

Buildings or constructions meant to be durable and to exist for a long period without significant alteration.

Ownership Interest

The legal right or claim a person has in a property or business, usually expressed as a percentage.

Estate

An interest in land. Property owned by a decedent at the time of his death.

Fee Simple Absolute

The highest form of land ownership, which gives the owner the right to possess and use the land for an unlimited period of time, subject only to governmental or private restrictions, and unconditional power to dispose of the property during his lifetime or upon his death.