Which of the Following Is the Appropriate Way to Calculate

question 60

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

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Definitions:

Preferred Shareholders

Investors who own preferred shares in a company, usually entitled to dividends before common shareholders and with certain other financial rights.

Market Price

The current price at which an asset or service can be bought or sold in a market.

No-Par

Refers to stock issued without a par value, meaning it has not been assigned a nominal face value.

Market Value

The ongoing rate at which one can buy or sell an asset or service.