The Flow-to-equity method:
I. uses cash flows to equity, after interest and after taxes
II. uses cost of equity capital as the discount rate
III. uses weighted average cost of capital for discount rate
IV. uses 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 involves using cash flows available to equity holders after interest and taxes (I) and discounts them using the cost of equity capital (II).

The Flow-To-Equity Method: I. Uses Cash Flows to Equity, After Interest and After