The value of a firm is defined as:
A)The sum of its free cash flows in each year, discounted at the firm's weighted average cost of capital (WACC)
B)The sum of its cash flows in each year, discounted at the firm's cost of capital
C)The sum of its free cash flows in each year, discounted at the average cost of debt
D)The sum of its cash flows in each year, discounted at the rate provided by the Federal Bank of each firm's home country on a permanent basis

Question

Quizplus · Accepted Answer

The value of a firm is best defined as the sum of its free cash flows in each year, discounted at the firm's weighted average cost of capital (WACC). This takes into account the cost of equity and debt financing and reflects the opportunity cost of investing in the firm's operations.

The Value of a Firm Is Defined As