1．The difference between the value estimate produced by the dividend discount model and the one produced by the free cash flow to equity (FCFE) model can be accounted for by which of the following?

A)   Different sales forecast.

B)   Different estimates of model risk.

C)   The value in controlling the firm's dividend policy.

D)   Never, the two models must always obtain the same estimate.

2．The estimate of value from FCFE models will always be different than the value obtained using DDM, if:

A)   FCFE is higher than dividends.

B)   FCFE is greater than dividends, and the excess is not invested in zero NPV projects.

C)   FCFE is equal to dividends.

D)   FCFE is higher than dividends, and the excess is invested in zero NPV projects.

3．When are the free cashflow to equity (FCFE) model and the dividend discount model (DDM) valuations different?

A)   When FCFE is greater than dividends and excess cash is invested in projects with a positive net present value.

B)   When FCFE equals dividends.

C)   When FCFE is greater than dividends and excess cash is invested in projects with a net present value of 0.

D)   There is deemed to be zero value to controlling the firm's dividend policy.

4．When FCFE is greater than dividends, the value obtained using FCFE will equal the value obtained using DDM if the:

A)   excess cash is invested in projects with positive NPV.

B)   excess cash is invested in projects with negative NPV.

C)   values will never be equal if FCFE is greater than dividends.

D)   excess cash is invested in projects with net present value (NPV) of zero.

5．The primary difference between the three-stage DDM and the FCFE model is:

A)   growth rate assumptions.

B)   the definition of cash flows.

C)   length of high-growth period.

D)   cost of equity.

答案和详解如下：

1．The difference between the value estimate produced by the dividend discount model and the one produced by the free cash flow to equity (FCFE) model can be accounted for by which of the following?

A)   Different sales forecast.

B)   Different estimates of model risk.

C)   The value in controlling the firm's dividend policy.

D)   Never, the two models must always obtain the same estimate.

The correct answer was C)

The difference between the value estimate produced by the dividend discount model and the one produced by the free cash flow to equity (FCFE) model can be interpreted as the value of controlling the firm's dividend policy.

2．The estimate of value from FCFE models will always be different than the value obtained using DDM, if:

A)   FCFE is higher than dividends.

B)   FCFE is greater than dividends, and the excess is not invested in zero NPV projects.

C)   FCFE is equal to dividends.

D)   FCFE is higher than dividends, and the excess is invested in zero NPV projects.

The correct answer was B)

The estimate of value from FCFE models will always be different from the value obtained using DDM, if the FCFE is greater than dividends, and the excess cash is not invested in zero NPV projects.

3．When are the free cashflow to equity (FCFE) model and the dividend discount model (DDM) valuations different?

A)   When FCFE is greater than dividends and excess cash is invested in projects with a positive net present value.

B)   When FCFE equals dividends.

C)   When FCFE is greater than dividends and excess cash is invested in projects with a net present value of 0.

D)   There is deemed to be zero value to controlling the firm's dividend policy.

The correct answer was A)

There are two conditions when the valuation derived from the FCFE valuation model will be the same as the value from the Dividend Discount Model Valuation. First, if dividends are identical to FCFE. Second, if FCFE is larger than the dividends yet the excess cash (FCFE minus dividends) is invested in projects with a NPV equal to 0. When the FCFE is greater than the dividends and excess cash (FCFE minus dividends) are invested in projects with a positive NPV, the FCFE model will obtain a greater value than the dividend discount model. Typically, the value produced by the FCFE model exceeds the value produced by the dividend discount model with the difference considered to be the value in controlling the firm’s dividend policy.

4．When FCFE is greater than dividends, the value obtained using FCFE will equal the value obtained using DDM if the:

A)   excess cash is invested in projects with positive NPV.

B)   excess cash is invested in projects with negative NPV.

C)   values will never be equal if FCFE is greater than dividends.

D)   excess cash is invested in projects with net present value (NPV) of zero.

The correct answer was D)

When FCFE is greater than dividends, but the excess cash is invested in projects with zero NPV, the FCFE model and DDM will give same estimates of firm value.

5．The primary difference between the three-stage DDM and the FCFE model is:

A)   growth rate assumptions.

B)   the definition of cash flows.

C)   length of high-growth period.

D)   cost of equity.

The correct answer was B)

The primary difference between the dividend discount models and the free cash flow from equity models lies in the definition of cash flows. The FCFE model uses residual cash flows after meeting all financial obligations and investment needs. The DDM uses a strict definition of cash flows to equity, that is, the expected dividends on the stock.