A Disadvantage of the Free Cash Flow Valuation Method Is

question 7

Multiple Choice

A disadvantage of the free cash flow valuation method is:

• A) The terminal value tends to dominate the total value in many cases.
• B) The projection of free cash flows depends on earnings estimates.
• C) The free cash flow method is not rigorous.
• D) The free cash flow method is not used widely in practice.

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Definitions:

Intangible Assets

Non-physical assets of a business that have value, such as patents, trademarks, goodwill, and brand recognition.

Durable Goods

Products that are intended to last for a considerable length of time (over three years), such as appliances, vehicles, and furniture.

Nondurable Goods

Products that are consumed or have a useful life shorter than three years, such as food, beverages, and paper products.

Economic Value

The worth or usefulness of a good or service determined by its ability to fulfill consumer needs and preferences.