Stock Valuation methods: Free cash now modelSuppose you are evaluating SolarHeat Co., a renewable energy startup that does not pay dividends, and you want to determine the value of theirshares using a free cash flow model. To do this, you analyze their financial statements for several things: (1) present value of free cash flows, (2)sabilities, and (3) number of outstanding shares. After some analysis, you determine that the present value of SolarHeat Co/s free cash flows,labilities, and number of outstanding shares are $140 million, $35 million, and 30 million, respectively, and that the cash flows will show no growth inthe future. Using this information, and the free cash flow model, SolarHeat Co's value per share ist$3.50$3.824.10Which of the following are limitations to the free cash flows model? Check all that applyIt can result in inaccurate valuations when the firm's forecasted earnings are incorrectly estimated.It can result in inaccurate valuations when the firm's capital investment is incorrectly estimatedIt assumes that the dividend growth rate will never be higher than the required rate of returnIt assumes that the dividend growth rate will never be lower than the required rate of return.

Free Cash Flow:It represents the cash produced by the firm after the payment of operating…

Answered: Suppose you are evaluating SolarHeat…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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