Which of the following statements about valuing a firm using the compressed adjusted present value (CAPV) approach is most CORRECT?

Question

Quizplus · Accepted Answer

In the compressed adjusted present value (CAPV) approach, the horizon value is calculated by discounting the free cash flows beyond the horizon date and any tax savings at the weighted average cost of capital (WACC). The horizon date is typically set at the point where the firm reaches a stable growth rate. Therefore, option C is the most correct choice. Option A is incorrect because the tax savings are discounted at the WACC, not the cost of debt. Option B is incorrect because the horizon value is not calculated based on expected earnings, but on free cash flows. Option D is incorrect because the horizon value can be any number of years in the future, depending on the firm's specific circumstances. Option E is incorrect because the horizon value is calculated at the WACC, not the levered cost of equity.

Which of the Following Statements About Valuing a Firm Using