Question #125
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 62
Status: Unattempted
Question
A three-stage free cash flow to the firm (FCFF) is typically appropriate when:
Answer Choices:
A. growth is currently low and will move through a transitional stage to a final stage wherein growth exceeds the required rate of return
B. growth is currently high and will move through a transitional stage to a steady-state growth rate
C. the required rate of return is less than the growth rate in the last stage
Explanation
The three-stage model using either FCFE or FCFF typically assumes that growth is currently
high and will move through a transitional stage to a steady-state growth rate. Multi-stage
models assume that the required rate of return exceeds the growth rate in the last stage.