Question #32
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 13
Status: Correct
Correct Answer: B
Question
In the stable-growth FCFE model, an extremely low value can result from all of the following EXCEPT:
Answer Choices:
A. the required rate of return is too high for a stable firm
B. the expected growth rate is too high for a stable firm
C. capital expenditures are too high relative to depreciation
Explanation
If the expected growth rate is too high for a stable firm, the value obtained using the
stable-growth FCFE model will be extremely high.