6 Questions
- Financial leverage refers to
The use of debt in a firm’s capital structure
Which statement is not correct about the Adjusted Present Value (APV) model?
Captures the value created by leverage better than the discounted free cash flow model
Assume that an all-equity financed company with cost of equity of 10% generates unlevered FCFs of 13 million in perpetuity. It plans to take on perpetual debt of $100m with interest rate of 5%. Tax rate is 20%. What is the value of this company after the change in capital structure?
$150m
Why is it not recommended to always use Discounted Cash Flow (DCF) over Adjusted Present Value (APV)?
DCF uses a single discount rate, unlike APV
Which factor is crucial for an analyst to understand in relation to the Adjusted Present Value model (APV)?
The relationship between value and leverage
In a scenario where a company has a high cost of equity and low debt capacity, which valuation model would be more suitable to use?
Adjusted Present Value (APV)
Test your knowledge on financial leverage and the adjusted present value model (APV) with this quiz. Questions cover topics such as the use of debt in a firm's capital structure and the key concepts of the APV model.
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