In Contrast to the FCFE Approach, the Dividend Discount Model

question 34

Multiple Choice

In contrast to the FCFE approach, the dividend discount model (DDM) approach values

• A) cash flows that are available for distribution to shareholders.
• B) the stream of cash flows that shareholders expect to receive through dividend payments.
• C) cash flows that remain after payments to all lenders.
• D) None of the above.

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Definitions:

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service and the total amount they actually pay.

Willing to Pay

The maximum price at which a consumer values a good or service enough to purchase it.

Producer Surplus

The difference between the amount producers are willing to receive for a good or service and the amount they actually receive, due to higher market prices.