The value of the cash flows that the assets of the firm are expected to generate must equal

Question

Quizplus · Accepted Answer

The value of the cash flows generated by the assets of the firm must be sufficient to pay the claims of both equity and debt investors. This is because both equity and debt investors have a claim on the cash flows generated by the firm, and the value of these cash flows should be sufficient to meet the obligations to both types of investors. Therefore, the value of the cash flows generated by the assets of the firm should be the same as the value of the cash flows claimed by both equity and debt investors. Option A and B are partially correct, but the correct answer is C because these cash flows should satisfy both equity and debt investors. Option D is incorrect because revenue refers to the total amount of money earned by the firm, and it does not provide information about the value of the cash flows generated by the assets of the firm.

The Value of the Cash Flows That the Assets of the Firm