Explain Why the Flow to Equity Approach Uses Levered,not Unlevered,cash

question 36

Essay

Explain why the flow to equity approach uses levered,not unlevered,cash flows.

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Definitions:

Average Total Cost

The per-unit cost of production, calculated by dividing the total cost of production by the quantity of output produced.

Economic Profit

The difference between the total revenue generated by a business and the total costs, including both explicit and implicit costs.

Short-run Marginal Cost Curve

A curve that shows the change in total cost associated with producing one more unit of output in the short term.

Diminishing Marginal Returns

A principle that states as additional units of a variable input are added to fixed inputs, the additional output produced from each new unit eventually decreases.