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1. An analyst is performing an equity valuation for a minority equity position in a dividend paying multinational. The appropriate model for this analysis is most likely:
A) FCFE approach.
B) The Dividend Discount approach. [The dividend discount model is most appropriate for valuing a minority equity position in a dividend-paying company. The free cash flow approach looks to the source of dividends from the perspective of an owner that has control rather than directly at dividends.
C) FCFF approach
2. The ownership perspective implicit in the dividend valuation approach is of:
B) a common stockholder. [Dividends are most relevant to the stockholders who receive them and who have little control over their amount.]
C) a preferred stockholder
3. The ownership perspective implicit in the free cash flow to equity valuation approach is of:
A) a preferred stockholder.
B) control. [Dividend policy can be changed by the buyer of a firm.
Thus, the free cash flow perspective looks to the source of dividends in a position of control rather than directly at dividends.]
C) a minority position
4. A control perspective is most consistent with which of the following valuation approaches?
B) Free cash flow (FCF). [Dividend policy can be changed by the buyer of a firm. Thus, the FCF perspective looks to the source of dividends in a position of control rather than directly at dividends. The price to enterprise value approach does not focus on cash flows.
C) Price to enterprise value.
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