Question #122
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 61
Status: Unattempted
Correct Answer: A
Question
An analyst is performing an equity valuation for a minority equity position in a dividend paying multinational. The appropriate model for this analysis is most likely:
Answer Choices:
A. FCFF approach
B. FCFE approach
C. The Dividend Discount approach
Explanation
The dividend discount model is most appropriate for valuing a minority equity position in
a dividend-paying company. The free cash flow approach looks to the source of dividends
from the perspective of an owner that has control rather than directly at dividends.