The constant growth valuation model approach to calculating the cost of equity assumes that ____. a. dividends are constant b. earnings and dividends grow at a constant rate, but stock price growth is indeterminate c. earnings, dividends, and stock price will grow at a constant rate d. the growth rate is greater than or equal to ke

The constant growth valuation model approach to calculating the cost of equity assumes that ____. a. dividends are constant b. earnings and dividends grow at a constant rate, but stock price growth is indeterminate c. earnings, dividends, and stock price will grow at a constant rate d. the growth rate is greater than or equal to ke

Name: which one is correct please confirm?QUESTION 39The constant growth val
Uploaded: 2024-03-20T06:51:32.000Z
Channel: Bartleby
Description: which one is correct please confirm?QUESTION 39The constant growth valuation model approach to calculating the cost of equity assumes that ____. a.dividends are constant b.earnings and dividends grow at a constant rate, but stock price growth is inde

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter9: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 3MC: Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN,...

See similar textbooks

QUESTION 39

The constant growth valuation model approach to calculating the cost of equity assumes that ____.

	a.	dividends are constant
	b.	earnings and dividends grow at a constant rate, but stock price growth is indeterminate
	c.	earnings, dividends, and stock price will grow at a constant rate
	d.	the growth rate is greater than or equal to k_e

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

In the Gordon Growth (dividend discount) Model, the growth rate is assumed to be the required return on equity. a. proportional to O b. Blank O c. equal to O d. greater than O e. less than
of stion According to MM Case II, if the expected return on assets decreases, what happens to the expected return on equity? Select one: Oa increases O b. remains constant Oc decreases O d. depends on the firm's capital structure Time le
The dividend discount model constant growth It is a method of evaluating dividends that assumes a fixed dividend in the future . Select one: O True O False
which one is correct please confirm? QUESTION 18 Which of the following is not an alternative dividend policy? a. Stable dollar b. Constant earnings c. Passive residual d. Constant payout
Which of the following formulas is INCORRECT? O A. Div = EPS, X Dividend Payout Rate OB. TE= (Div/P)+g OC. PN(Eg) × Div N+1 O D. earnings growth rate= retention rate x return on new investment
2. What are flotation costs? 3. How is cost of common equity computed for no growth stock? for constant growth stock? 4.What is a dividend yield? 5. Define the following terms used in Capital Asset Pricing Model (CAPM) to compute for cost of equity: a. Risk-free rate b. Stock's Beta Coefficient C. Market risk premium 6. How is cost of equity under Bond Yield Plus Risk Premium Approach computed? 7. How is weighted average cost of capital (WACC) computed?
A decrease in the will cause an increase in common stock value. O A. growth rate O B. required rate of return Oc. last paid dividend D. both B and C
The value of an asset is the present value of the expected returns from the asset during theholding period. An investment will provide a stream of returns during this period, and it isnecessary to discount this stream of returns at an appropriate rate to determine the asset’spresent value. A dividend valuation model such as the following is frequent. where:Pi = the current price of Common Stock iD1 = the expected dividend in Period 1ki = the required rate of return on Stock igi = the expected constant-growth rate of dividends for Stock iA. Identify the three factors that must be estimated for any valuation model, and explain whythese estimates are more difficult to derive for common stocks than for bonds.B. Explain the principal problem involved in using a dividend valuation model to value :(1) companies whose operations are closely correlated with economic cycles.(2) companies that are of very large and mature.(3) companies that are quite small and are growing rapidly.
Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.
The constant growth model: i. Assumes that dividend income will increase at a consistent rate forever. ii. Can be used to value the worth of a share. iii. States that the market price of a share is only affected by the amount of the dividend. iv. Considers capital gains but ignores the dividend yield. Select one: a. i and ii only b. iii and iv only c. ii. only d. i. only
multible choice, In applying the constant-growth dividend model, increasing the market capitalization rate will cause a stock’s intrinsic value to? why? decrease increase remain unchanged. decrease or increase, depending upon other factors.
An increase in which of the following will increase the return on equity, all else constant?I. salesII. net incomeIII. depreciationIV. total equity a) I only b) I and II only c) II and III only d) I, II, and IV only