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Which of the following is true of the equity valuation model?                 a.             Discounts free cash...

Which of the following is true of the equity valuation model?

                a.             Discounts free cash flow to the firm by the weighted average cost of capital

                b.             Discounts free cash flow to equity by the cost of equity

                c.             Discounts free cash flow the firm by the cost of equity

                d.             Discounts free cash flow to equity by the weighted average cost of capital

                e.             None of the above

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Answer #1

To Calculate the Value of the Equity, We take the Free Cash Flow for equity and Cost of Equity. WE need to take Cash Flow and Cost uniformly. This is , If we are taking Free Cash Flow for Equity then we will have to take the Cost of Equity only. When Cash Flow for firm is taken, the WACC is taken as it is combined cost.

Option B is correct.

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