1. Discuss the nature of the numerators and denominators in the dividend discount model and the free cash flow valuation model. What makes these approaches similar; what makes these different? Explain why the term consistency is important in the application of these two competing valuation models. Give an example of inconsistency.
2. Why do market analysts employ price multiples (e.g., price/earnings, price/book, etc.) in their valuation work? Besides the obvious, what does a price/earnings multiple of 18 versus a price/earnings multiple of 10 financially suggest? What does a price/book of 3 suggest? Conceptually, would you ever purchase a stock with a price/book of 3?