Question

It is hard to value a young, non-dividend paying company using the DDM approach because ...

Select one:

a. the company will likely never pay dividends

b. dividends, once initiated, will likely be volatile

c. it is likely that the growth rate is above the required rate of return for the first few years

d. the eventual size of dividends, once initiated, is very unclear

The rate at which the price of a dividend-paying asset increases is most aptly called the

Select one:

a. capital return

b. capital gains rate

c. required return

d. cost of capital

In the Gordon Growth Model, the share price at the beginning of the second year can be computed as

Select one:

a. D3 / (r - g)

b. D2 / (r - g)

c. D1 / (r - g)

d. None of these.

The required rate of return ...

Select one:

a. tends to be high for large, stable companies

b. is mostly due to capital gains

c. is typically driven by the dividend yield

d. is the market's expectation of the rate of return in the future

Which of these statements is incorrect?

Select one:

A. Preference shares are a type of equity.

B. Preference shares rank ahead of common equity in case of bankruptcy.

C. Preference shares generally carry the same amount of voting rights as common shares.

D. Preference shares must be paid dividends before common equity.

Which class of securities has the lowest rank when it comes to receiving payments out of the pool of assets in bankruptcy?

Select one:

a. ordinary shares

b. preferred shares

c. junior unsecured bonds

d. bank line of credit

Answer 1

1] It is hard to value a young, non-dividend paying company using the DDM approach because ...

d. the eventual size of dividends, once initiated, is very unclear

2] The rate at which the price of a dividend-paying asset increases is most aptly called the

a. capital return

3] In the Gordon Growth Model, the share price at the beginning of the second year can be computed as

b. D2 / (r - g)

4] The required rate of return ...

d. is the market's expectation of the rate of return in the future

5] Which of these statements is incorrect?

C. Preference shares generally carry the same amount of voting rights as common shares.

6] Which class of securities has the lowest rank when it comes to receiving payments out of the pool of assets in bankruptcy?

a. ordinary shares