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3. Fundamentals of the free cash flow corporate valuation model Aa Aa E Several methods can be used to compute the intrinsic

Which of the following statements about the FCF valuation model are true? The model is useful because it demonstrates the rel

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Answer #1

The FCF valuation model computes a firm's intrinsic value also called its entity value-as the sum of the value of its operating activities (Vop) and the value of firm's non operating assets, where

  • Vop is computed by dividing the firm's expected future free cash flows by its WACC.
  • A Firm's non-operating assets include it's highly marketable short term securities in which a firm invests it's temporarily available excess cash and it's investments in other businesses.

Hence Options 1, 2 and 3 are true.

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