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COMM_V 370 101-108 2025W1 COMM 370 - 2025W1 - Final - Requires Respondus LockDown Browser

Single choice

Regarding the valuation of levered companies, select the correct statement:

Options
A.Discounting the (unlevered) free cash flow at the cost of equity gives the value of the firm’s equity.
B.Discounting the free cash flow to equity at the cost of equity gives the value of the firm’s equity, excluding the value of interest tax shields.
C.Discounting the free cash flow to equity at the cost of equity gives the total value of the firm.
D.Discounting the free cash flow to equity at the cost of equity gives the value of the firm’s equity, including the value of the interest tax shields.
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Step-by-Step Analysis
Question restatement: The topic is the valuation of levered companies, asking which statement is correct regarding discounting methods and what is captured in the resulting value. Option 1: 'Discounting the (unlevered) free cash flow at the cost of equity gives the value of the firm’s equity.' This mixes concepts improperly. Unlevered free cash flow (FCF) is the cash flow available to all capital providers, not just equity holders, and it is typically disc......Login to view full explanation

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