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

ID: 2706058 • Letter: 4

Question

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

CORRECT?

a. The value of equity is calculated by discounting the horizon value, the tax shields, and

the free cash flows at the cost of equity.

b. The value of operations is calculated by discounting the horizon value, the tax shields,

and the free cash flows before the horizon date at the unlevered cost of equity.

c. The value of equity is calculated by discounting the horizon value and the free cash flows

at the cost of equity.

d. The APV approach stands for the accounting pre-valuation approach.

e. The value of operations is calculated by discounting the horizon value, the tax shields,

and the free cash flows at the cost of equity.

Which is the correct answer ? Thanks

Hello. This answer is B.

The value of operations is calculated by discounting the horizon value, the tax shields,

and the free cash flows before the horizon date at the unlevered cost of equity.

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