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True or False: The common stock of any for-profit business can be valued using the dividend...

True or False: The common stock of any for-profit business can be valued using the dividend valuation model.

True or False: Under the dividend valuation model, the value of any stock is influenced by both the dividend stream and the expected capital gains.

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Answer #1

The common stock of any for-profit business can be valued using the dividend valuation model.

FALSE

To use the dividend discount model,

  • the company must be paying dividends. Not all for-profit businesses pay dividends
  • Even if the company pays dividends, the dividends must have a relationship with the earnings to meaningfully estimate the value of the stock

Under the dividend valuation model, the value of any stock is influenced by both the dividend stream and the expected capital gains.

FALSE

  • Expected capital gains is not a component of Dividend Valuation Model
  • Dividend Valuation Model discounts only the future dividends to estimate the value of the stock

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