In the Free Cash Flow from the Firm (FCFF) Approach

question 22

Multiple Choice

In the free cash flow from the firm (FCFF) approach, the total value of the firm, V_F, is computed as the present value of the FCFF:

• A) discounted by the firm's cost of equity.
• B) discounted by the firm's WACC.
• C) discounted by the firm's cost of debt.
• D) discounted by the inflation rate prevailing in the economy.

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Definitions:

Accounting Profit

The total revenue of a firm less its explicit costs; the profit (or net income) that appears on accounting statements and that is reported to the government for tax purposes.

Entrepreneur's Talent

Entrepreneur's talent refers to the unique skills, insights, and abilities that an entrepreneur applies to develop innovative ideas, overcome obstacles, and drive business success.

Annual Revenue

The total amount of money generated by a company from its activities, such as sales or services, before any expenses are subtracted, in one fiscal year.

Explicit Cost

The monetary payment made by a firm to an outsider to obtain a resource.