FCFE: appropriate valuation model with relatively constant proportions of equity and debt financing

[Question]

FCFE > 0

Under the assumption that a company maintains relatively constant proportions of equity and debt financing, the most appropriate valuation model is the:

A. FCFF approach.
B. FCFE approach.
C. residual income approach

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Answer: B

Since the company's capital structure is reasonably stable and FCFE is positive, FCFE is a simpler approach to valuation than FCFF, EVA, or residual income, and is preferred in this case.