土豆妮

The stable-growth free cash flow to the firm (FCFF) model is most useful in valuing firms that:

A) are growing at a rate significantly lower than that of the overall economy.

B) have capital expenditures that are not significantly higher than depreciation.

C) have capital expenditures that are significantly higher than depreciation.

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The stable-growth FCFF model is useful for valuing firms that are expected to have growth rates close to that of the overall economy. Since the rate of growth approximates that for the overall economy, these firms should have capital expenditures that are not significantly different than depreciation.

土豆妮

Which of the following statements regarding the FCFF models is most accurate? The two-stage FCFF model is more useful than the stable-growth FCFF model when the firm is growing at a rate:

A) significantly higher than that of the overall economy.

B) significantly lower than that of the overall economy.

C) not significantly higher than that of the overall economy.

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The two-stage FCFF model is more useful in valuing a firm that is growing at a rate significantly higher than the overall economy. Since this cannot persist indefinitely, growth will eventually slow to a stable growth rate consistent with that of the economy.

土豆妮

A biotech firm is currently experiencing high growth and pays no dividends. One of their product patents is scheduled to expire in 5 years. This firm would be a good candidate for which of the following valuation models?

A) Single-stage free cash flow to equity (FCFE).

B) Two-stage dividend discount model (DDM).

C) Two-stage free cash flow to equity (FCFE).

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The two-stage FCFE model is well suited to value a firm that is currently experiencing high growth and will likely see this growth drop to a lower, more stable rate in the future.

土豆妮

Which of the following free cash flow to equity (FCFE) models is most suited to analyze firms in an industry with significant barriers to entry?

A) FCFE Perpetuity Model.

B) Stable Growth FCFE Model.

C) Two-stage FCFE Model.

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The two-stage FCFE model is most suited for analyzing firms in high growth that will maintain that growth for a specific period, such as firms with patents or firms in an industry with significant barriers to entry.

土豆妮

Which of the following free cash flow to the firm (FCFF) models is most suited to analyze firms that are growing at a faster rate than the overall economy?

A) High growth FCFF model.

B) No growth FCFF model.

C) Two-stage FCFF model.

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The two-stage FCFF model is most suited for analyzing firms growing at a rate faster than the overall economy. The two-stage model assumes a high rate of growth for an initial period, followed by an immediate jump to a constant, stable growth rate.

土豆妮

The two-stage FCFE model is suitable for valuing firms that:

A) have very high but declining growth rate in the initial stage.

B) are in an industry with significant barriers to entry.

C) have moderate growth in the initial phase that declines gradually to a stable rate.

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The two-stage FCFE model is suitable for valuing firms in industries with significant barriers to entry. Where these are present it is possible for the firm to maintain a high growth rate during an initial phase of low competition, and that the rate will drop sharply to a normalized rate when competition ultimately appears.

土豆妮

The two-stage (stable growth) free cash flow to equity (FCFE) and free cash flow to the firm (FCFF) models typically assume:

A) the required rate of return is less than the growth rate in the last stage.

B) a high-growth rate for n years and then a constant growth rate forever thereafter.

C) the required rate of return equals the growth rate in the last stage.

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The two-stage model using either FCFE or FCFF typically assumes a high-growth rate for n years and then a constant growth rate forever thereafter. Multi-stage models assume that the required rate of return exceeds the growth rate in the last stage.