A disadvantage of the free cash flow valuation method is:
A) The terminal value tends to dominate the total value in many cases.
B) The projection of free cash flows depends on earnings estimates.
C) The free cash flow method is not rigorous.
D) The free cash flow method is not used widely in practice.

Question

Quizplus · Accepted Answer

The terminal value often represents a large portion of the total valuation in the free cash flow method, which can make the valuation sensitive to assumptions about long-term growth rates and discount rates.

A Disadvantage of the Free Cash Flow Valuation Method Is