For a firm that repurchases its stock,firm value is most easily estimated by discounting _______________
A) dividends plus repurchases per share.
B) repurchases rather than dividends.
C) free cash flows.
D) pre-repurchase earnings per share.

Question

Quizplus · Accepted Answer

The value of a firm that repurchases its stock can be estimated by discounting the free cash flows. Free cash flow is a measure of a company's financial performance, representing the cash that a company generates after accounting for capital expenditures. As the firm repurchases its stock, the equity portion of the equation reduces, leading to increased free cash flow per share. Discounting these cash flows provides an estimate of the firm's value. Dividends and repurchases per share, repurchases rather than dividends, and pre-repurchase earnings per share are not as reliable indicators of firm value as free cash flows.

For a Firm That Repurchases Its Stock,firm Value Is Most