Question

16. Which of the following statements is CORRECT? (2pts)

a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock

b. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.

c. If a stock has a required rate of return ke = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.

d. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

e. Two firms with the same expected dividend and growth rates must also have the same stock price.

Answer #1

16.The correct option is option A. The constant growth model takes into consideration the capital gains an investor expects to earn on a stock.

b. The constant growth model, can only be applied when the growth rate is constant.

c. Re = d1/po + g

12% = d1/po + 5%

So, the dividend yield shall be 7% .

d. The price of the stock is the present value of all the dividends , discounted at the required rate of return and not the growth rate.

e. No, it is not true, the required rate of return may be different, which can lead to the different stock prices.

Which of the following statements is most correct?
Select one:
a. The constant growth model is often appropriate for companies
that never pay dividend.
b. The constant growth model is often appropriate for mature
companies with a stable history of growth.
c. Two firms with the same dividend and growth rate must also
have the same stock price.
d. The constant growth model cannot be applied to companies that
expect zero dividend growth rate.
e. The constant growth model is...

Which of the following statements is most correct? Select
one:
a. The constant growth model is often appropriate for companies
that the dividend growth rate is larger than its required rate of
return on stock.
b. The constant growth model is often appropriate for companies
that never pay dividend.
c. Two firms with the same dividend and growth rate should have
the same stock price.
d. The constant growth model can be applied to companies that
expect zero dividend growth...

Which of the following statements is incorrect regarding the
constant growth model?
a.Another name for the dividend to be received in one year
divided by the current stock price is the expected dividend
yield.
b.The constant growth model assumes that earnings, dividends and
stock prices are expected to grow at a constant rate.
c.If the dividend growth rate is zero, the constant growth model
becomes a zero-growth valuation model.
d.The constant growth model can still be used if the required...

Which of the following statements is incorrect regarding the
constant growth model?
Group of answer choices
If the dividend growth rate is zero, the constant growth model
becomes a zero-growth valuation model.
The constant growth model can still be used if the required rate
of return is less than the dividend growth rate.
Another name for the dividend to be received in one year divided
by the current stock price is the expected dividend yield.
The constant growth model calculates...

Which of the following is false?
A. For a constant dividend growth stock, the stock price is
expected to grow at a rate equal to the dividend growth rate.
B. For the constant dividend growth model, the required return must
be larger than the constant dividend growth rate.
C. As with bonds, the current price of a stock is the future value
of all expected cash flows.
D. Financial managers attempt to maximize the value of the firm by
increasing...

VALUATION OF A CONSTANT GROWTH STOCK
Investors require a 16% rate of return on Levine Company's stock
(i.e., rs = 16%).
What is its value if the previous dividend was D0 = $3.50 and
investors expect dividends to grow at a constant annual rate of (1)
-2%, (2) 0%, (3) 7%, or (4) 13%? Do not round intermediate
calculations. Round your answers to two decimal places.
(1) $
(2) $
(3) $
(4) $
Using data from part a, what...

5 & 7
5. Problem 9.11 (Valuation of a Constant Growth
Stock)
A stock is expected to pay a dividend of $1.00 at the end of the
year (i.e., D1 = $1.00), and it should continue to grow
at a constant rate of 6% a year. If its required return is 15%,
what is the stock's expected price 1 year from today? Do not round
intermediate calculations. Round your answer to the nearest
cent.
$
7. Problem 9.14 (Nonconstant Growth)
Computech Corporation...

Choose all correct statements.
1.Dividend growth rate is equivalent to the dividend yield.
2.The total return on a stock is equal to the dividend yield
plus the capital gains yield.
3.The benchmark PE ratio can be used to value the stock of firms
that pay no dividends.
4.Assume the constant dividend growth model. An increase in the
capital gains yield will increase the current value of a stock.

Non-constant growth model problem Show all work.
Formulas:
DAA's stock is selling for $15 per share. The firm's income,
assets, and stock price have been growing at an annual 15 percent
rate and are expected to continue to grow at this rate for 3 more
years. No dividends have been declared as yet, but the firm intends
to declare a dividend of D3 = $2.00 at the end of the last year of
its supernormal growth. After that, dividends are...

Super Carpeting Inc. just paid a dividend ( D0 ) of $1.44, and
its dividend is expected to grow at a constant rate (g) of 2.10%
per year. If the required return ( rs ) on Super’s stock is 5.25%,
then the intrinsic, or theoretical market, value of Super’s shares
is per share. Which of the following statements is true about the
constant growth model? The constant growth model implies that
dividend growth remains constant from now to infinity. The...

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