Question

Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV)...

Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV) approach is most CORRECT? a. The horizon value is calculated by discounting the expected earnings at the WACC. b. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC. c. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the levered cost of equity. d. The horizon value must always be more than 20 years in the future. e. The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the cost of debt.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC.(Option B)

The adjusted present value is the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits, which are the additional effects of debt.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Compressed APV Model with Constant Growth An unlevered firm has a value of $700 million. An...
Compressed APV Model with Constant Growth An unlevered firm has a value of $700 million. An otherwise identical but levered firm has $70 million in debt at a 6% interest rate. Its cost of debt is 6% and its unlevered cost of equity is 12%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 2%. Assuming the corporate tax rate is 35%, use the compressed adjusted present value model to determine...
Problem 21-03 Compressed APV Model with Constant Growth An unlevered firm has a value of $850...
Problem 21-03 Compressed APV Model with Constant Growth An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $80 million in debt at a 7% interest rate. Its cost of debt is 7% and its unlevered cost of equity is 11%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 4%. Assuming the corporate tax rate is 40%, use the compressed adjusted present value model...
Considering the valuation of mergers, which of the following is NOT correct? A. In a merger...
Considering the valuation of mergers, which of the following is NOT correct? A. In a merger with true synergies, the post-merger value exceeds the sum of the separate companies' pre-merger values. B. Only if a target firm's value is greater to the acquiring firm than its market value as a separate entity will a merger be financially justified. C. If the capital structure is stable, and free cash flows are expected to be growing at a constant rate at the...
An unlevered firm has a value of $800 million. An otherwise identical but levered firm has...
An unlevered firm has a value of $800 million. An otherwise identical but levered firm has $40 million in debt at a 4% interest rate. Its cost of debt is 4% and its unlevered cost of equity is 12%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 3%. Assuming the corporate tax rate is 40%, use the compressed adjusted present value model to determine the value of the levered firm....
An unlevered firm has a value of $750 million. An otherwise identical but levered firm has...
An unlevered firm has a value of $750 million. An otherwise identical but levered firm has $40 million in debt at a 6% interest rate. Its cost of debt is 6% and its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 3%. Assuming the corporate tax rate is 40%, use the compressed adjusted present value model to determine the value of the levered firm....
An unlevered firm has a value of $700 million. An otherwise identical but levered firm has...
An unlevered firm has a value of $700 million. An otherwise identical but levered firm has $40 million in debt at a 6% interest rate. Its cost of debt is 6% and its unlevered cost of equity is 10%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 2%. Assuming the corporate tax rate is 35%, use the compressed adjusted present value model to determine the value of the levered firm....
the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting...
the Enterprise Value of a firm (using the DCF valuation methodology) is arrived at by discounting the after-tax free Cash & Capital Flows available to the firm by the Weighted Average Cost of Capital (WACC). True or False  
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash...
Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash $30M Debt $230M Operating Assets $500M Equity $300M Asset Value $530M Debt + Equity $530M Assume that the you plan to keep the firm’s debt-to-equity ratio fixed. The firm’s corporate tax rate is 50%. The firm’s cost of debt is 10% and cost of equity is 20%. Now, suppose that you are considering a new project that will last for one year. According to...
QUESTION 24 [Q24-35] Your firm’s market value balance sheet is given as follows: Market Value Balance...
QUESTION 24 [Q24-35] Your firm’s market value balance sheet is given as follows: Market Value Balance Sheet Excess cash $30M Debt $230M Operating Assets $500M Equity $300M Asset Value $530M Debt + Equity $530M Assume that the you plan to keep the firm’s debt-to-equity ratio fixed. The firm’s corporate tax rate is 50%. The firm’s cost of debt is 10% and cost of equity is 20%. Now, suppose that you are considering a new project that will last for one...
1. Which of the following statements is incorrect? a. The time value of money implies that...
1. Which of the following statements is incorrect? a. The time value of money implies that a dollar received today is worth more than a dollar received tomorrow. b. The time value of money implies that the further in the future you receive a dollar, the more it is worth today. c. All the answers are correct except one. d. A dollar today is worth more than a dollar received in the future. e. The earnings from compounding drive much...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT