A discounted cash flow approach to valuing a firm, using the weighted average cost of capital as a discount rate, makes sense to use when: a. Financial structure and risk of the investment are relatively stable over time. b. The risk of bankruptcy is high. c. A firm is expected to go through a transition that calls for a high use of debt that will be paid down over a few years. d. Non-GAAP accounting is being used. e. All of the above.
A discounted cash flow approach to valuing a firm, using the weighted average cost of capital as a discount rate, makes sense to use when: a. Financial structure and risk of the investment are relatively stable over time. b. The risk of bankruptcy is high. c. A firm is expected to go through a transition that calls for a high use of debt that will be paid down over a few years. d. Non-GAAP accounting is being used. e. All of the above.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A discounted cash flow approach to valuing a firm, using the weighted average cost of capital as a discount rate, makes sense to use when:
| a. |
Financial structure and risk of the investment are relatively stable over time.
|
|
| b. |
The risk of bankruptcy is high.
|
|
| c. |
A firm is expected to go through a transition that calls for a high use of debt that will be paid down over a few years.
|
|
| d. |
Non-GAAP accounting is being used.
|
|
| e. |
All of the above. |
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