CAS Exam 7 Spring 2015, Question 16
Study guide: Exam 7
The discounted cash flow (DCF) method for company valuation relies on the estimation of free cash flows.
Part a (0.75 points)
Define free cash flow.
Part b (0.25 points)
Briefly explain a practical weakness with the estimation of free cash flows.
Part c (0.5 points)
Explain how the abnormal earnings method represents an improvement over the DCF method.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution