Multiple choice: (1 alternative correct)

You are valuing a company as a going concern. The firm starts out with a modest cash balance and is projected to have large negative cash flows during the first few years of operations. When you have negative cash flows over a given period in your DCF valuation you are implicitly assuming that:

1. the firm's cost of capital is higher than its return on capital

2. the firm will be able to raise additional capital during that period

3. the firm has a negative growth rate during that time

4. the firm is in decline/distress