Under the Cash-Flow-Based Valuation Approach,free Cash Flows Can Be Used

question 26

Multiple Choice

Under the cash-flow-based valuation approach,free cash flows can be used instead of dividends as the expected future payoffs to the investor in the numerator of the general valuation model because:

• A) this approach focuses on earnings as a measure of the capital that a firm creates.
• B) over the life of the firm, the free cash flows into the firm and cash flows paid out of the firm in dividends to shareholders will be equivalent.
• C) over the life of the firm, the free cash flows out of the firm for investments and cash flows paid into the firm in dividends from these investments will be equivalent.
• D) this approach focuses on wealth distribution to shareholders.

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