Question

II. TRUE/ FALSE Indicate whether the statement below is true or false ( 1 Point each) The constant growth model is an approach to dividend valuation that assumes a constant future dividend. 2) The free cash flow valuation model is based on the same principle as the P/E valuation approach; that is, the value of a share of stock is the present value of future cash flows 3) In common stock valuation, any action taken by the financial manager that increases risk will cause an increase in value 4)Assuming that economic conditions remain stable, any management action that would cause current and prospective stockholders to raise their dividend expectations should decrease the firm's value. 5) Dilution of ownership occurs when a new stock issue results in each present stockholder having a larger number of shares and, thus, a claim to a larger part of the firm's earnings than previously 6) Corporate venture capital funds are subsidiaries of financial institutions, particularly banks, set up to help young firms grow and, it is hoped, become major customers of the institutions Interest paid to bondholders is tax deductible but interest paid to stockholders is not.

Answer 1

question 1
answer: False.

As per constant growth model

Intrinsic value=expected dividend/(required rate of return-growth rate)

It is a discounting model. In which the dividend is expected to rise by the growth rate.

Question 2:
Answer: False.
Where as price to equity model is relative valuation model.
Whereas as free cash flow model is a discounting valuation model.

Question 3:
Answer: False:
An action taken by the manager which increases risk also increases the required return.
As the required atom increases the value of the company decreases.

Question 4:
Answer: False.
the dividend discount model states that as the dividend expectation increases then the value of the company increases.