QUESTIONS 79 THROUGH 90 RELATE TO EQUITY INVESTMENTS

88. An investor wants to determine the intrinsic value of the common stock for a company with the

following characteristics:

• The firm maintains a constant dividend payout ratio

• Goodwill and patents account for 40% of the firm’s assets

• The firm’s revenues and earnings are highly correlated with the business cycle

Further, the investor focuses on the firm’s capacity to pay dividends rather than expected

dividends. Considering the above, the investor will most likely use which of the following

valuation models?

A. Asset-based valuation model.

B. Free-cash-flow-to-equity model.

C. Gordon dividend growth model.

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