The FTE Approach Has Been Used by the Firm to Value

question 31

Multiple Choice

The FTE approach has been used by the firm to value their capital budgeting projects. The total investment cost at time 0 is $640,000. The company uses the FTE approach because they maintain a target debt to value ratio over project lives. The company has a debt to equity ratio of .5. The present value of the project including debt financing is $810,994. What is the relevant initial investment cost to use in determining the value of the project?

• A) $640,000
• B) $170,994
• C) $267,628
• D) $437,252

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Definitions:

Formula Ratio

A mathematical relationship or proportion between two or more numbers or quantities, often used in calculations for medication dosages.

Active Ingredient

The component of a medication or substance that is biologically active, responsible for its effects.

Solution Ratio

The proportion of solute to solvent in a solution, often important in the preparation of medical and chemical solutions.

Diluent

A substance used to dilute another substance, reducing its concentration without altering its chemical structure.