The Discounted Dividend Model and the Corporate Valuation Model are two different ways to determine the intrinsic value of a share of stock. The Models are similar but do have some differences. Please review the following statements and select all of the ones (and only the ones) that reflect the differences between the two models. a.The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the Discounted Dividend Model can not. b.The Discounted Dividend Model uses dividends as the cash flows while the Corporate Valuation Model uses Free Cash Flow (FCF). c.The Discounted Dividend Model uses the required rate of return on the stock to discount the cash flows while the Corporate Valuation Model uses the Weighted Average Cost of Capital (WACC) to discount the cash flows. d.The Corporate Valuation Model requires you to back out the value of the firm's debt and preferred stock from your estimate of the corporation's value and divide by the number of shares of common stock outstanding in order to determine the intrinsic value of one share of stock.

a.The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the…

Answered: The Discounted Dividend Model and the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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The Discounted Dividend Model and the Corporate Valuation Model are two different ways to determine the intrinsic value of a share of stock. The Models are similar but do have some differences. Please review the following statements and select all of the ones (and only the ones) that reflect the differences between the two models.

	a.	The Corporate Valuation Model can be used for companies with uneven cashflow growth rates and the Discounted Dividend Model can not.
	b.	The Discounted Dividend Model uses dividends as the cash flows while the Corporate Valuation Model uses Free Cash Flow (FCF).
	c.	The Discounted Dividend Model uses the required rate of return on the stock to discount the cash flows while the Corporate Valuation Model uses the Weighted Average Cost of Capital (WACC) to discount the cash flows.
	d.	The Corporate Valuation Model requires you to back out the value of the firm's debt and preferred stock from your estimate of the corporation's value and divide by the number of shares of common stock outstanding in order to determine the intrinsic value of one share of stock.

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