Which of the following is true about stocks?   A. the dividend yield must always be positive   B. the capital gains yield can never be negative.   C. the capital gains yield can never be zero   D. the dividend yield can never be negative According to the constant dividend growth model, which of the following is true?     A. the constant growth rate is the same as the dividend yield   B. The price growth rate is the same as the dividend yield   C. the capital gains yield is the same as the constant dividend growth rate   D. the dividend yield is the same as the capital gains yield

3. Consider the following two statements:  Statement 1: A firm can either pay its earnings to its investors, or it can keep them and reinvest them; Statement 2: According to the constant dividend growth model, the share price of the firm depends on the current dividend level, divided by the cost of equity capital plus the grow rate. Which one of the following combinations (true/false) relating to the above statement is correct?    A. Statement 1                        Statement 2  True                                           True   B. Statement 1                        Statement 2 True                                           False    C. Statement 1                        Statement 2 False                                           False    D. Statement 1                        Statement 2 False                                           True

Answer the following a) When will the different DCF methods use the same discount rate? b) The cost of debt (ka) will change as the capital structure of a firm changes. Why or why not? c) Why does the cost of equity (k.) increase as the amount of debt in the capital structure of a firm increases? Why? d) Freebie Inc.'s common stock has a beta of 1.3. If the risk-free rate is 4.5% and the expected return on the market is 12%, what is its cost of equity capital? e) Why do branded food companies command the highest EBIT multiple (about 8) and transportation companies the lowest (about 3)? f) Should a firm use its cost of capital as a hurdle/discount rate to value all internal divisions? Why or why not? g) An option can have more than one source of value. Consider a mining company. The company can mine for ores today or wait another year (or more) to mine. What real options can you identify here? h) Do you consider dividend payments by the firm in calculating cash flows? Why or why not? i)…

Reverse engineering share prices is an exercise in deductive reasoning. If we assume market price reflects share value, then through reverse engineering we can infer what the market assumes about   a. the expected rate of return on equity capital, holding expected profitability and long-run growth constant.     b. the expected profitability, holding the expected rate of return on equity capital and long-run growth constant.     c. the expected long-run growth, holding the expected rate of return on equity capital and expected profitability constant.