Question

1)what are the correct statements.

Group of answer choice:

a)If a security is underpriced, then the expected holding period return is above the market capitalization rate.

b)The value of the equity equals the present value of all future payouts (dividends plus repurchases).

c)The value of a share equals the present value of all future dividends per share.

d)If a firm reinvests its earnings at an ROE equal to the market capitalization rate, then its earnings-price (E/P) ratio is equal to the market capitalization rate.

e)The value of a share equals the present value of earnings per share assuming the firm does not grow, plus the NPV of all future investments.

2)what are the the correct statements.

Group of answer choices:

a)Everything else equal, the higher the expected dividend growth rate, the higher the P/E ratio.

b)Everything else equal, the higher the plowback ratio, the lower the P/E ratio.

c)Everything else equal, the higher the plowback ratio, the higher the P/E ratio.

d)Everything else equal, the higher the risk of the stock, the lower the P/E ratio.

e)Everything else equal, the higher the risk of the stock, the higher the P/E ratio.

3)Match the stock valuation model with the cash flows used in that model from the choices.

Group of answer choices

-Total Payout Model

Group of answer choices: Dividends per share            Free Cash Flow to the Firm            Dividends plus buybacks      

-Dividend Discount Model

Group of answer choices: Dividends per share            Free Cash Flow to the Firm            Dividends plus buybacks      

-DCF Model

Group of answer choices: Dividends per share            Free Cash Flow to the Firm            Dividends plus buybacks      

4)

Match the stock valuation mode with the discount rate used in that model from the options.

-Total Payout Model

Group of answer choices: equity cost of capital            weighted-average cost of capital      

-Dividend Discount Model

Group of answer choices: equity cost of capital            weighted-average cost of capital      

-DCF Model

Group of answer choices: equity cost of capital            weighted-average cost of capital

Answer 1

1)

a)If a security is underpriced, then the expected holding period return is above the market capitalization rate.

c)The value of a share equals the present value of all future dividends per share.

e)The value of a share equals the present value of earnings per share assuming the firm does not grow, plus the NPV of all future investments.

2)

a)Everything else equal, the higher the expected dividend growth rate, the higher the P/E ratio.

b)Everything else equal, the higher the plowback ratio, the lower the P/E ratio.

d)Everything else equal, the higher the risk of the stock, the lower the P/E ratio.

3)

Total payout - dividend + others

Dividend discount - Dividend per share

DCF - Free cash flow to the firm

4)

Total payout - equity cost of capital

DDM Model - equity cost of capital  

DCF - Weighted average cost of capital