Which of the following statements about valuing a firm using the APV approach is

Question

Which of the following statements about valuing a firm using the APV approach is most CORRECT?

(a) 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.
(b) The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the cost of debt.
(c) The horizon value is calculated by discounting the expected earnings at the WACC.
(d) The horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the WACC.
(e) The horizon value must always be more than 20 years in the future.

Explanation / Answer

c. The horizon value is calculated by discounting the expected earnings at the WACC.

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