why is FCFE useful from a control perspective? (ref: pg 128 from text)
they will have a control over the cash flows and it makes sence to use FCFE model instead of DDM
can you elaborate a little please?
If you are taking a controlling interest you could change the dividend policy, so value the free cash flows available to you instead.
When you get a little further and into the specific FCF section it may become more clear, but the CFAI text is painful to read as I just happened to check out the page you referenced.
A basic way to view it is that someone with a control perspective may want to use FCFE instead of another valuation model like DDM because if they have control over policy they can actually dictate what the dividend is and what they will keep as retained earnings. Why would you use DDM to value if you can just change the D?
Just like you can’t really use FCFE if there is never any FCF because the firm is constantly having major CAPEX well into the future.
When you get through the different valuation models and conceptually understand the inputs than you’ll figure out which ones are best to use under different circumstances…I’m not fully there yet but am starting to get a handle on it. Just have to internalize it and be able to recall it now…
edit: I was long winded but the above answer sums it up.
Thanks very much guys. This was very helpful.