To think critically about: In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm. Introduction: The dividend discount model (DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values. Free cash flow (FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

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Answer 1

Question

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

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Answer 2

Question

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

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Answer 3

Question

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

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Answer 4

Question

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

Answer 6

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

Answer 7

Chapter 13, Problem 1PS

Summary Introduction

To think critically about:

In what circumstances, one would prefer to choose a dividend discount model instead of a free cash flow model to value a firm.

Introduction:

The dividend discount model(DDM)- It is a method where the stock prices of the companies are valued based on the methodology that the stock has a worth to provide the future dividends and is discounted back to their present values.

Free cash flow(FCF) is a measure that states the amount of cash that a business generates after accounting for all the expenditures are capital in nature for example: Equipments, buildings etc.

Answer 8

Expert Solution & Answer

Answer to Problem 1PS

The answer is one would choose to use a dividend discount model to value a mature firm that pays a relatively stable dividend.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

In case of Free Cash Flow model, the firm is valued based on the cash flow available to it or its equity holders net of capital expenditures. Hence this approach is very useful for the firms that pay no dividends. However, for the firms that pay no dividends, Dividend discount model is difficult to implement as the basic assumption is the value of stock depends on dividend forecasts. Dividend discount model asserts that stock prices are determined ultimately by the cash flows accruing to stakeholders and those are in dividends.

Answer 12

Ch. 13 - Prob. 1PS Ch. 13 - Prob. 2PS Ch. 13 - If a security is underpriced [Lew intrinsic value...Ch. 13 - Deployment Specialists pays a current (annual)...Ch. 13 - Jand, Inc, currently pays a dividend of 1.22,...Ch. 13 - A firm pays a current dividend of 1, which is...Ch. 13 - Tri-coat Paints has a current market value of 41...Ch. 13 - A firm has current assets that could be sold for...Ch. 13 - Prob. 9PS Ch. 13 - Miltmar Corporation will pay a year-end dividend...

Answer to Problem 1PS

Explanation of Solution

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Chapter 13 Solutions