Which of the following statements is NOT CORRECT?
A) The corporate valuation model discounts free cash flows by the required return on equity.
B) The corporate valuation model can be used to find the value of a division.
C) An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
D) Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.
E) The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.

Question

Quizplus · Accepted Answer

The corporate valuation model discounts free cash flows by the weighted average cost of capital (WACC), not the required return on equity. The required return on equity is used to calculate the cost of equity in the WACC formula.

Which of the Following Statements Is NOT CORRECT