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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Definitions:

Uterine Cycle

The monthly cycle of changes in the uterus, including menstruation and the development of the endometrium, in preparation for possible pregnancy.

Mons Pubis

A rounded mound of fatty tissue situated over the pubic bone of females, becoming more prominent after puberty.

Vulva

Common name for the external genital organs of a female.

Progesterone

A steroid hormone released by the corpus luteum that stimulates the uterus to prepare for pregnancy.