Explain FCFF and FCFE models with one stable-growth stage, two stages and three stages, and argue which suits a given firm's characteristics

The choice of free cash flow model follows the company's expected growth pattern. A single-stage model, value equals next year's free cash flow divided by (discount rate − g), fits a mature company growing steadily at about the rate of the economy. A two-stage model suits a company with a period of high growth that then settles; the first stage is forecast year by year and the second valued as a growing perpetuity. A three-stage model adds a transition in which growth declines, suiting a young company with very high current growth. Growth can be applied to free cash flow itself or to its components, such as sales and margins. The trap is valuing a company about to change sharply with a single-stage model.