Which of the Following Is the Appropriate Way to Calculate

question 34

Multiple Choice

Which of the following is the appropriate way to calculate the price of a share of a given company using the free cash flow valuation model?

• A) P0 = PV(Future Free Cash Flow of Firm)/(Shares Outstanding0)
• B) P0 = (V0 + Cash0 - Debt0)/(Shares Outstanding0)
• C) P0 = Div1/(rE - g)
• D) P0 = [Div1/(rE - g)]/(Shares Outstanding0)

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Definitions:

Inventory Costing Methods

These are accounting approaches to determine the value of inventory on hand and the cost of goods sold, including methods like FIFO (First-In, First-Out) and LIFO (Last-In, First-Out).

Weighted-average

A calculation that takes into account both the quantity and the significance of the items being averaged.

FIFO

A cost flow assumption for inventory and financial accounting where the first goods purchased or produced are the first to be sold.

FIFO Inventory

An inventory costing method that assumes the items purchased or produced first are sold first, thereby remaining inventory consists of items added most recently.