Larry and Curley are brothers. They're both serious investors, but they have different approaches to valuing stocks.

Question:

Larry and Curley are brothers. They're both serious investors, but they have different approaches to valuing stocks. Larry, the older brother, likes to use the dividend valuation model. Curley prefers the free cash flow to equity valuation model.

As it turns out, right now, both of them are looking at the same stock-American Home Care Products, Inc. (AHCP). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock-solid, dividend-paying stock. The brothers have gathered the following information about AHCP's stock:

Current dividend (D0) = $2.50/share

Current free cash flow (FCF0) = $1 million

Expected growth rate of dividends and cash flows (g) = 5.0%

Required rate of return (r) = 12.0%

Shares outstanding = 400,000

How would Larry and Curley each value this stock?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...