Which expression would be most useful when calculating the value of the firm in a World without growth?
A) (Cash flows one year hence)/(Weighted average cost of capital)
B) (Weighted average cost of capital)/(Cash flows one year hence)
C) (Cash flows one year hence) + (Weighted average cost of capital)
D) (Cash flows one year hence) - (Weighted average cost of capital)

Question

Quizplus · Accepted Answer

In a World without growth, the value of the firm would be based solely on its ability to generate cash flows in the short term. The most useful expression for calculating this value would be to divide the cash flows expected one year from now by the weighted average cost of capital, which accounts for the costs of financing the firm's operations. This is captured by choice A.

Which Expression Would Be Most Useful When Calculating the Value