A disadvantage of the free cash flow valuation method is A. The free cash flow method is not used widely in practice. B. The ter

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A disadvantage of the free cash flow valuation method is A. The free cash flow method is not used widely in practice. B. The ter

minal value tends to dominate the total value in many cases. C. The free cash flow method is not rigorous. D. The projection of free cash flows depends on earnings estimates.

Business

1 answer:

SSSSS [86.1K] · Answer 1 · 2023-01-28T08:07:06+03:00

The main disadvantage of the valuation method is that the terminal value tends to dominate the total value in many cases.

In a free cash flow valuation, the intrinsic value equals present value of its free cash flow and thus, the net cash flow is left over for distribution to stockholders and debt-holders in each period.

So, the disadvantage of the free cash flow valuation method is that the terminal value tends to dominate the total value in many cases.

Hence, the Option B is correct.

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