When a Value or a Cash Flow Is Compounded or Discounted,the

question 19

Multiple Choice

When a value or a cash flow is compounded or discounted,the value or cash flow will have

• A) linear growth.
• B) exponential growth.
• C) constant growth.
• D) percentage growth.

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Definitions:

Miller Model

A theory on capital structure that extends the Modigliani-Miller theorem by including corporate taxes but excluding bankruptcy costs.

Leverage Gain

The increase in potential returns to an investor achieved by using borrowed funds or financial derivatives.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements; it represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.

Capital Structure

The composition of a company’s debt and equity used to finance its overall operations and growth.