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.

Understand the basic concepts and assumptions of the quantity theory of money.

Grasp the relationship between money supply (M), velocity of money (V), price level (P), and real output (Q) in determining GDP.

Differentiate between the crude and sophisticated quantity theories of money.

Recognize the importance of velocity of money in economic transactions and its calculation.

---

Definitions:

Total Revenue Test

A method used to assess the elasticity of demand by observing changes in total revenue following a price change.

Quantity Supplied

The actual amount of a good or service producers are willing to sell at some specific price.

Supply Curve

A graphical representation that shows the relationship between the price of a good and the quantity of the good that suppliers are willing and able to sell, holding other factors constant.

Price-elastic

Refers to the responsiveness of the demand for a good to a change in its price; highly price-elastic goods see significant changes in demand when prices fluctuate.