Which of the Following Statements About Valuing a Firm Using

question 22

Multiple Choice

Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV) approach is most CORRECT?

• A) the horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the cost of debt.
• B) the horizon value is calculated by discounting the expected earnings at the wacc.
• C) the horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the wacc.
• D) the horizon value must always be more than 20 years in the future.
• E) the horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the levered cost of equity.

---

Definitions:

Accrued Expense

Expenses that have been incurred but not yet paid or recorded in the financial statements.

Adjusting Entry

An entry made in the accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred.

Unearned Rent

Income received before the period to which it applies, requiring deferred revenue recognition until the service (rental period) is provided.

Adjusting Entry

An adjusting entry is a journal entry made in accounting records at the end of an accounting period to allocate income and expenditures to the appropriate period.