________ is the capital budgeting approach that finds the value of the leveraged firm by discounting forecasts of all-equity free cash flows with a weighted average of the required rates of return to the firm's debt and equity.

Question

Quizplus · Accepted Answer

The described capital budgeting approach is known as the weighted average cost of capital (WACC) method. It takes into account both the cost of debt and the cost of equity, weighted by their proportion in the capital structure, to determine the overall required rate of return for the firm. This rate is then used to discount the forecasted free cash flows. The flow-to-equity method (A) is a different approach that only calculates the value of equity, after subtracting the value of debt. Choices C and D do not accurately describe the approach mentioned in the question.

________ Is the Capital Budgeting Approach That Finds the Value