Which of the Following Is True of the APV Method

question 17

Multiple Choice

Which of the following is true of the APV method and the WACC method?

• A)The APV method discounts only one set of cash flows,whereas the WACC method discounts separately the cash flows of the project and the cash flows of the tax savings or other debt subsidies.
• B)The WACC method would treat the cash flows from the tax breaks in a similar manner to the incremental cash flows generated by subsidized loans,whereas the APV method draws a distinction between subsidies related to project?s financing and those not related to financing.
• C)Both methods use the unlevered cash flows generated by the project as their starting point,assuming that the project is financed entirely by equity.
• D)Both methods account for benefits from debt financing by adjusting the discount rate.

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Definitions:

Catastrophic Thinking

A cognitive distortion involving the anticipation of the worst possible outcomes in a situation, often seen in anxiety and depressive disorders.

Unrealistic Pessimism

The tendency to overestimate the likelihood of negative outcomes happening.

Self-Talk

The internal dialogue a person has with themselves, which can influence their feelings, behaviors, and overall mental state.

Emotional Reactions

Immediate responses to stimuli or events that are characterized by feelings such as happiness, anger, or sadness.