Final answer:
The value of a stock according to the basic FCF model is the present value of expected future free cash flows, discounted to today's dollars, considering potential capital gains and dividends.
Step-by-step explanation:
According to the basic Free Cash Flow (FCF) stock valuation model, the value an investor should assign to a share of stock is the present value of all expected future free cash flows that the company will generate, discounted back to their value in today's dollars. To calculate this, one must estimate the expected future cash flows and then discount them using an appropriate discount rate, which reflects the riskiness of the investment and the opportunity cost of capital.
Investors need to consider possible capital gains from the future sale of the stock and any expected dividends when determining the value they are willing to pay for a stock. The valuation incorporates the anticipated return on the stock based on these factors. Differences in opinions on future profitability, discount rates, and other variables can lead to varying valuations among investors. Essentially, stock valuation with the FCF model is about determining what price to pay now for expected future financial benefits.