Question #60
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 29
Status: Unattempted
Correct Answer: B
Question
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:
Answer Choices:
A. significantly lower than that of the overall economy
B. not significantly higher than that of the overall economy
C. significantly higher than that of the overall economy
Explanation
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.