If you want to value a firm but do not want to explicitly forecast its dividends, the simplest model for you to use is ________.
A) the discounted free cash flow model
B) the dividend-discount model
C) the enterprise value model
D) None of the above models can be used if you do not want to forecast dividends or use of debt.

Question

Quizplus · Accepted Answer

The discounted free cash flow model is the best choice because it does not require explicit forecasting of dividends. Instead, it uses the projected future cash flows of the firm, discounted to their present value, to determine the firm's value. This method is preferred by many analysts because it is based on the cash that a firm generates and can be reinvested in the business or returned to shareholders through dividends or share buybacks.

If You Want to Value a Firm but Do Not