Question #59
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 29
Status: Unattempted
Correct Answer: A
Question
Terminal value in a multi-stage free cash flow to equity (FCFE) valuation model is often calculated as the present value of:
Answer Choices:
A. a two-stage valuation model's price
B. free cash flow divided by the growth rate
C. FCFE divided by the total of required rate on equity minus growth
Explanation
Terminal values are usually calculated as the present value of the price produced by a
constant-growth model as of the beginning of the last stage, which is FCFE / (required rate
on equity – growth).