HUI 75.doc

 CLICK HERE TO DOWNLOAD THIS ANSWER INSTANTLY

 

(TCO H) Which of the following statements about valuing a firm using the APV approach is most CORRECT?

(a) The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity.
(b) The value of equity is calculated by discounting the horizon value, the tax shields, and the free cash flows at the cost of equity.
(c) The value of operations is calculated by discounting the horizon value, the tax shields, and the free cash flows before the horizon date at the unlevered cost of equity.
(d) The value of equity is calculated by discounting the horizon value and the free cash flows at the cost of equity.
(e) The APV approach stands for the accounting pre-valuation approach.

TCO I) Suppose in the spot market 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6-month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?

(a) 1 U.S. dollar = 0.6235 Canadian dollars
(b) 1 U.S. dollar =
0.6265 Canadian dollars
(c) 1 U.S. dollar = 1.0000 Canadian dollars
(d) 1
U.S. dollar = 1.5961 Canadian dollars
(e) 1 U.S. dollar = 1.6039 Canadian
dollars (Points : 20)