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

question 50

Multiple Choice

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

• A) there is greater risk with a LBO.
• B) the capital structure is changing over time.
• C) there is no tax shield with the WACC.
• D) the value of the levered and unlevered firms are equal.

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Definitions:

Earrings

Jewelery pieces worn on the ear, typically fastened through a hole pierced in the earlobe or another external part of the ear.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the cost per unit.

Total Cost

The sum of all expenses incurred in the production of a good or service, including both fixed and variable costs.

Marginal Cost

The expense associated with manufacturing an extra unit of a product.