When valuing a firm with debt and equity,the cash flows during the non-constant growth period should be:

Question

Quizplus · Accepted Answer

During the non-constant growth period, cash flows are expected to grow at different rates. Therefore, we cannot use the constant growth formula to value the firm. Instead, we use the discounted cash flow (DCF) method, where cash flows are discounted to their present value using the weighted average cost of capital (WACC). As the WACC fluctuates, we need to use a time value of money concept by dividing the cash flows by (1 + WACC)^n to convert them to their present value. This will enable us to arrive at an accurate valuation of the firm. Therefore, the best choice is C.

When Valuing a Firm with Debt and Equity,the Cash Flows