Quiz Ch 19 – Optimal Use of the APV Method for Analyzing Projects
Principles of Corporate Finance
Brealey, Myers, and Allen
13th Edition
In what context is the APV method most beneficial for analysis?
In what context is the APV method most beneficial for analysis?
What values should be employed for D (debt), E (equity), and V (total value) when determining the weighted average cost of capital (WACC)?
True or false: To calculate Adjusted Present Value, add the base-case NPV to the total present values of financing side effects.
True or false: When computing APV, consider NPV (base-case assuming all equity financing) subtracted by NPV (financing decisions influenced by project financing).
True or false: The APV method finds utility in evaluating the total value of a business.
True or false: When discounting free cash flows at the WACC, it is assumed that debt is adjusted periodically to keep a stable ratio of debt to the market value of the firm.
True or false: The firm’s horizon value at period H is expressed as PVH = (FCFH + 1)/(WACC − g) in the case of constant expected long-term growth.
True or false: The total value of a firm is the result of subtracting the present value of its horizon value from the present value of its free cash flows.
True or false: The presence of government loan guarantees for firms can enhance APV by lowering the risk of bankruptcy.
True or false: Calculating the present value of free cash flows using the WACC serves as a method to estimate the value of a firm.