Evaluate each of his comments for correctness, and SUPPORT YOUR ANSWERS.

You have been discussing valuation with a friend who majors in finance at X School. Youre working on a holding period model that uses Free Cash Flow to the Firm and uses an EV/EBITDA multiple to get terminal value.

He says you should use Price/Earnings to get the terminal value rather than Enterprise Value to EBITDA, because earnings capture ALL the expenses of the company, while EBITDA doesnt reflect depreciation, interest, or taxes. He also said you should use the cost of equity from a levered beta as the discount rate since it takes leverage into account.

Evaluate each of his comments for correctness, and SUPPORT YOUR ANSWERS.

Your friend from school x also noticed that you are trying to value a firm in the late growth stage of the industry life cycle. He says that you should use the Gordon growth (i.e. constant growth) model to value the firm. Is his suggestion valid, or should he seek employment outside the finance industry?

Support your answer (i.e. if hes correct, state why. If not, state why hes wrong and what would be the correct model).