The "Pure Play" Approach to Estimating a Divisions WACC Involves

question 56

Multiple Choice

The "pure play" approach to estimating a divisions WACC involves

• A) computing the value of the division if it were to be spun off as a separate company.
• B) comparisons to free standing firms with businesses similar to the division.
• C) "deleveraging" the division so that only the cost of equity is considered.
• D) using the company's WACC to estimate the value added by the division.

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Definitions:

Constants

Fixed values in mathematical equations or models that do not change under different conditions.

Indifference Curves

Graphical representations showing combinations of two goods among which a consumer is indifferent, reflecting their preferences.

Avocados

Edible, pear-shaped fruits with a rich, creamy texture, often used in various cuisines worldwide.

Grapefruits

A large, round, yellow citrus fruit with a slightly bitter flavor.