Which of the Following Is the Appropriate Way to Calculate

question 25

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

---

Definitions:

FIFO

"First In, First Out", an inventory valuation method where the costs of the oldest inventory items are the first to be recognized in determining cost of goods sold.

LIFO

"Last In, First Out," an inventory valuation method where the last items added to inventory are the first ones to be used or sold.

Lower-Of-Cost

An accounting method that values inventory at the lower of its historical cost or current market value.

Market Basis

Market Basis refers to the approach of valuing assets or securities at their current market prices instead of their cost prices or intrinsic values.