Which of the Following Statements Is NOT CORRECT

question 4

Multiple Choice

Which of the following statements is NOT CORRECT?

• A) The corporate valuation model discounts free cash flows by the required return on equity.
• B) The corporate valuation model can be used to find the value of a division.
• C) An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
• D) Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.
• E) The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.

---

Definitions:

Compounded Annually

Refers to the process of calculating interest earned on an investment or loan on an annual basis, where the amount earned is reinvested to earn additional interest in subsequent years.

Cash Flows

The cumulative exchange of cash and cash-equivalents flowing into and out of a corporate entity.

Lump Sum Payment

One lump sum payment made at a specific moment, rather than multiple smaller payments over time.

Management Contract

An agreement between two parties wherein one party agrees to manage the operations of a project or business on behalf of the other for a predetermined period and fee.