Question #14
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 6
Status: Incorrect
Correct Answer: B
Your Answer: C
Question
Free cash flow (FCF) approaches are the best source of value when:
Answer Choices:
A. a firm has no preferred stock
B. dividends are paid but do not reflect the company's capacity to pay dividends
C. a firm has significant minority interest
Explanation
FCF approaches are best when dividends are paid but do not appear to be representative
of the firm's capacity to pay them. Both remaining responses have nothing to do with the
decision.