The price one is willing to pay for a common stock is positively related to expected free cash flows to the firm (FCFF) and negatively related to the required rate of return.

Question

Quizplus · Accepted Answer

The price an investor is willing to pay for a common stock increases with higher expected free cash flows to the firm (FCFF), as these cash flows represent potential future income for the investor. Conversely, the price decreases as the required rate of return increases, since a higher required return makes the stock less attractive compared to other investment opportunities, all else being equal.

The Price One Is Willing to Pay for a Common