Homework Answers
Gordon model consider the future dividends payment by a company with its growth rate and calculates the value of stock calculating the present value of the dividend payments
Hence gordon model is not applicable for conpany with 100% retention as there will be no dividend payment. Hence first option is incorrect
Since the model consider only dividend payment with constant growth it ignores all other risks. Hence second option is correct
Gordon model factors dividend growth rate hence it is sensitive to growth rate. Hence the option is wrong
Gordon model assumes the growth rate to be constant, hence the company growing with GDP growth rate will have varying growth rates. Hence last option is not correct
Add Answer to:
Which of the following statements is TRUE? Gordon Model is applicable to firms that have a...
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1....
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1. One simple method of estimating the dividend growth rate is to analyze the historical paltem of dividends II. The expected total return equals the return from capital gains plus the return from dividends TIL. The model is applicable to growth firms with initially high growth rates. IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return...
Which of the following is a true statement? Select one: A. In the maturity stage, firms...
Which of the following is a true statement? Select one: A. In the maturity stage, firms often pay significant cash dividends. B. In the development stage, firms usually pay little or no cash dividends. C. When a firm is in its early growth stage, it may pay stock dividends instead of cash dividends. D. Each of these statements is true.
Which two of the following five statements are correct? Select two alternatives: Because the cash flows...
Which two of the following five statements are correct? Select two alternatives: Because the cash flows from stocks are known with certainty, we can discount them using the risk-free interest rate. We should use the general dividend discount model to value the stock of a firm with rapid or changing growth. Successful young firms often have high initial earnings growth rates. During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to...
1. True or false: According to the Gordon Growth Model, firms that pay dividends will always...
1. True or false: According to the Gordon Growth Model, firms that pay dividends will always have a higher cost of equity than firms that do not pay dividends. 2. True or false: Flotation costs reduce the cost of capital. 3. True or false: If investors expect returns on the market to be higher next year, then, according to the CAPM, an individual firm’s cost of equity will be lower. 4. Which one of the following typically reduces the weighted...
Consider two very different firms, M and N. Firm M is a mature firm in a...
Consider two very different firms, M and N. Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M's growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has...
Are the following statements true? Statement 1: The Fama and French evidence that high book-to-market firms...
Are the following statements true? Statement 1: The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor. Statement 2: Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect an abnormal price change immediately after the announcement. A. Yes. B. No. Both are...
Which of the following statements is true? O Increasing dividends will always decrease the stock price,...
Which of the following statements is true? O Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. O Increasing dividends will always increase the stock price. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth Walter Utilities is a dividend paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its...
Assume a standard trade model. Which of the following statements is NOT true? a) At the...
Assume a standard trade model. Which of the following statements is NOT true? a) At the optimal output mix, the slope of the production possibility frontier equals the negative relative price. b) If the economy produces more of one good, it has to produce less of the other good. c) The production possibility frontier is convex. d) The optimal output mix is realized where the isovalue line is tangent to the production possibility frontier. Assume a firm faces the following...
Which of the following statements is true about the general dividend valuation model? It implies that...
Which of the following statements is true about the general dividend valuation model? It implies that the value of a firm’s common stock can be determined only if the expected future dividends are infinite. The model cannot be used to calculate the value of a common stock unless the dividends exceed the firm’s expected growth rate. It implies that the underlying value of a share of stock is determined by the market’s expectations of the future dividends that the firm...
Which two of the following five statements are correct? Select two alternatives: During periods of high...
Which two of the following five statements are correct? Select two alternatives: During periods of high growth, it is not unusual for firms to pay out 100% of their earings to shareholders in the form of dividends. We should use the general dividend discount model to value the stock of a firm with rapid or changing growth. The capital gain is the difference between the expected sale price and the purchase price of the stock. Estimating dividends, especially for the...
6) Which of the following statements concerning the constant-growth dividend valuation model is (ar) correct 1. One simple method of estimating the dividend growth rate is to analyze the historical paltem of dividends II. The expected total return equals the return from capital gains plus the return from dividends TIL. The model is applicable to growth firms with initially high growth rates. IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return...
Which of the following statements is true? O Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. O Increasing dividends will always increase the stock price. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth Walter Utilities is a dividend paying company and is expected to pay an annual dividend of $2.05 at the end of the year. Its...
Which two of the following five statements are correct? Select two alternatives: During periods of high growth, it is not unusual for firms to pay out 100% of their earings to shareholders in the form of dividends. We should use the general dividend discount model to value the stock of a firm with rapid or changing growth. The capital gain is the difference between the expected sale price and the purchase price of the stock. Estimating dividends, especially for the...
Most questions answered within 3 hours.
-
1. The correlation coefficient determined for two variables has
a value of 0.89. Describe, in words,...
asked 18 seconds ago -
Kyle, a 95.0 kg football player, leaps straight up into the air
(with no horizontal velocity)...
asked 22 minutes ago -
Which of the following is a measure of profitability?
A.
Quick (acid-test) ratio
B.
Net sales...
asked 25 minutes ago -
Find the total pressure exerted by 2 grams of ethane and 3 grams
of CO2 contained...
asked 26 minutes ago -
A fireman standing on a 5.2 m high ladder operates a water hose
with a round...
asked 22 minutes ago -
A cream formulation is studied for accelerated stability study.
Creaming was observed when formulation was tested...
asked 25 minutes ago -
A 1,150 lumen light bulb is placed 37 cm in front of a mirrored
wall, whose...
asked 36 minutes ago -
Given that z is a standard normal random variable, compute the
following probabilities (to 4 decimals)....
asked 42 minutes ago -
You begin preparation of the calibration curve to measure
absorbance vs concentration of FeSCN2+. To do...
asked 59 minutes ago -
When you speak after breathing helium, in which the speed of
sound is much greater than...
asked 52 minutes ago -
3. Stock Valuation: You are the CEO of Under Armour, Inc. and
are thinking about how...
asked 56 minutes ago -
Choose a brand. Critique the brand in terms of its brand
positioning, brand identity and brand...
asked 59 minutes ago