Which of the following statements is CORRECT?
A) To implement the corporate valuation model,we discount projected free cash flows at the weighted average cost of capital.
B) To implement the corporate valuation model,we discount net operating profit after taxes (NOPAT)at the weighted average cost of capital.
C) To implement the corporate valuation model,we discount projected net income at the weighted average cost of capital.
D) To implement the corporate valuation model,we discount projected free cash flows at the cost of equity capital.
E) The corporate valuation model requires the assumption of a constant growth rate in all years.

Question

Quizplus · Accepted Answer

The correct statement is A. In the corporate valuation model, we discount projected free cash flows at the weighted average cost of capital (WACC), which represents the required return on the company's total capital. This approach takes into account both the cost of debt and the cost of equity in financing the company's operations. Net operating profit after taxes (NOPAT) and net income are not used in this specific model. The constant growth rate assumption is generally used in the Gordon Growth Model, but it is not a requirement for the corporate valuation model.

Which of the Following Statements Is CORRECT