If you want to value a firm that consistently pays out its earnings as dividends, the simplest model for you to use is the ________.
A) enterprise value model
B) method of comparables
C) dividend-discount model
D) discounted free cash flow model

Question

Quizplus · Accepted Answer

The dividend-discount model is the most appropriate option to value a firm that consistently pays out its earnings as dividends. This model calculates the present value of future cash flows, based on dividends received by investors, to estimate the intrinsic value of the firm. The enterprise value model and discounted free cash flow model are more commonly used for firms that reinvest their earnings rather than paying out dividends. The method of comparables is a valuation method used to compare similar companies in the same industry.

If You Want to Value a Firm That Consistently Pays