a. Illustrate the primary difference between the dividend discount models and the free cash flow to equity models.

b. Which model provides a better estimation of valuing firms for takeovers.

c. Will the following firms be likely to have a higher value from the dividend discount model, a higher value from the FCFE model, or the same?

1. firm that pays out less in dividends than it has available in FCFE, but invests the balance in treasury bonds.

2. a firm that pays out, on average, its FCFE as dividends

3. firm that pays out more in dividends than it has available in FCFE, and then issues stock to cover the difference.