土豆妮

If a firm is valued using FCFF, the relevant discount rate is the:

A) before-tax cost of equity.

B) after-tax weighted average cost of capital.

C) before-tax weighted average cost of capital.

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Since the FCFF is the cash available to all the investors, the after-tax weighted average cost of capital should be used as the discount rate in FCFF models.

土豆妮

In the stable-growth FCFE model, an extremely low value can result from all of the following EXCEPT:

A) capital expenditures are too high relative to depreciation.

B) the required rate of return is too high for a stable firm.

C) the expected growth rate is too high for a stable firm.

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If the expected growth rate is too high for a stable firm, the value obtained using the stable-growth FCFE model will be extremely high.