Question #95
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 44
Status: Unattempted
Correct Answer: A
Question
Valuation with free cash flow to equity and free cash flow to the firm:
Answer Choices:
A. both use the cost of equity
B. use different discount rates
Explanation
Free cash flow to the firm uses the weighted average cost of capital and free cash flow to
equity uses the cost of equity. The key is to use a discount rate that reflects the
opportunity cost of the indicated investor group.