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.

Question

Quizplus · Accepted Answer

The APV (Adjusted Present Value) approach separates the value of a firm into the value of operations and the value of the tax shields. 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. The value of equity is then calculated by adding the value of the tax shields to the value of operations and discounting at the cost of equity. Therefore, statement B is the most correct.

Which of the Following Statements About Valuing a Firm Using