Asked by Pratik Sanyal on Jul 17, 2024
Verified
Which statement regarding the corporate valuation model is NOT correct?
A) The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
B) The corporate valuation model discounts free cash flows by the required return on equity.
C) The corporate valuation model can be used to find the value of a division.
D) An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
Corporate Valuation Model
Defines the total value of a company as the value of operations plus the value of nonoperating assets plus the value of growth options.
Pro Forma
Financial statements or projections based on hypothetical scenarios or certain assumptions to forecast future performance.
Free Cash Flows
The amount of cash generated by a company after accounting for capital expenditures, important for assessing its financial health and potential for growth.
- Understand the basic principles of the corporate valuation model, which involves computing the horizon value and equity.
Verified Answer
Learning Objectives
- Understand the basic principles of the corporate valuation model, which involves computing the horizon value and equity.
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