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Answer: dividend discount model.
## Explanation The **dividend discount model (DDM)** is most appropriate in this scenario because: ### Why DDM is Suitable: - The company pays a **constant, stable dividend** despite negative FCFE - Dividends are being paid from sources other than current free cash flow (e.g., debt issuance, asset sales, or retained earnings) - The dividend payment pattern is predictable and sustainable ### Why Other Models Are Less Appropriate: - **Free cash flow to equity (FCFE) model**: Not suitable because FCFE is negative, making valuation problematic - **Residual income model**: While potentially applicable, it's less direct when the company has a clear dividend policy ### Key Insight: When a company maintains stable dividends despite negative free cash flows, it signals management's commitment to shareholder returns, and the dividend stream becomes the most reliable measure of value creation for shareholders in such situations.
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A company expects negative free cash flow to equity, but to still pay a constant, stable dividend. The most appropriate model to value the company is the:
A
residual income model.
B
dividend discount model.
C
free cash flow to equity model.