Question: Contrast and compare the WACC and the APV methods and critically evaluate strengths and weaknesses of the two methods. What are the underlying assumptions

Contrast and compare the WACC and the APV methods and critically evaluate strengths and weaknesses of the two methods. What are the underlying assumptions of the two methods? Refer to the existing literature when discussing and evaluating these assumptions. (30 marks) Practitioners sometimes consider the financial distress costs in their APV applications. What are these costs? Why are they relevant? Briefly describe the empirical evidence on distress costs, including studies on their magnitude relative to firm value. (10 marks)

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SOLUTION A The Weighted Average Cost of Capital WACC and Adjusted Present Value APV methods are two widely used approaches to valuation in corporate finance The WACC method calculates the present valu... View full answer

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