The Free Cash Flow Model: I.can be used to value a company with negative earnings.
II)is based on a firm having positive cash flows.
III)requires that a firm pay a dividend.
IV)directly estimates a value for a firm's equity
A) I only
B) I and II only
C) I and III only
D) I, II, and III only
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

The Free Cash Flow Model can be used to value a company with negative earnings (I) and is based on a firm having positive cash flows (II). However, it does not require a firm to pay a dividend (III) and it indirectly estimates a value for a firm's equity by subtracting debt and adding cash to the present value of expected future cash flows (IV).