The WACC Approach to Valuation Is Not as Useful as the APV

question 53

Multiple Choice

The WACC approach to valuation is not as useful as the APV approach in leveraged buyouts because:

• A) there is greater risk with a LBO.
• B) the capital structure is changing.
• C) there is no tax shield with the WACC.
• D) the value of the levered and unlevered firms are equal.
• E) the unlevered and levered cash flows are separated which cannot be used with the WACC approach.

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