The flow-to-equity method uses:
I.cash flows to equity, after interest and after taxes;
II.the cost of equity capital as the discount rate;
III.the weighted average cost of capital for discount rate;
IV.after-tax cash flows without considering interest and dividend payments
A)I and II only
B)II and III only
C)I and III only
D)II and IV only

Question

Quizplus · Accepted Answer

The flow-to-equity method uses cash flows to equity, after interest and after taxes (I) and the cost of equity capital as the discount rate (II). It does not use the weighted average cost of capital (III) or after-tax cash flows without considering interest and dividend payments (IV).

The Flow-To-Equity Method Uses