Rita has calculated the discounted value of the free cash flows to the firm (FCFFs) for a company that has no preferred stock. What additional adjustment(s) does she have to make to her calculated discounted value to derive an estimate of the firm's stock price?
A) Subtract the value of debt and divide by shares outstanding
B) Add the value of debt and divide by shares outstanding
C) Subtract the value of capital expenditures and divide by shares outstanding
D) Divide by shares outstanding

Question

Quizplus · Accepted Answer

To estimate the firm's stock price, Rita needs to subtract the value of debt from the discounted value of FCFFs and then divide by the number of shares outstanding. This is because the FCFF represents the value available to all capital holders, and subtracting debt gives the equity value.

Rita Has Calculated the Discounted Value of the Free Cash