Final answer:
The inputs for Cash Flow to Equity (CFTE) include Net Income, Cash Flows, Reinvestment Needs, and Debt Repayment. For Weighted Average Cost of Capital (WACC), the inputs include the Cost of Equity, Cost of Debt, Market Values of Equity and Debt, and the Tax Rate. Adjusted Present Value (APV) requires Base-case NPV, Present Value of Financing Effects, and the Tax Shield from Debt.
Step-by-step explanation:
The student's question pertains to the inputs required for three common valuation methods: Cash Flow to Equity (CFTE), Weighted Average Cost of Capital (WACC), and Adjusted Present Value (APV). Each method has specific requirements for the inputs needed to calculate the value of a company or investment.
Inputs needed for CFTE:
- Net Income
- Cash Flows from operations
- Reinvestment Needs
- Debt Repayment/Borrowing
Inputs needed for WACC:
- Cost of Equity
- Cost of Debt
- Market Value of Equity
- Market Value of Debt
- Corporate Tax Rate
Inputs needed for APV:
- Base-case NPV (assuming no debt)
- Present Value of Financing Effects (PVFE)
- Tax Shield due to Debt
These inputs help determine the value of an investment by projecting future benefits and discounting them back to the present value using an appropriate discount rate. CFTE takes a more equity-focused approach whereas WACC is an overall firm valuation method, incorporating both debt and equity. APV adds the benefits of financing separately to a base NPV.