Stock Valuation Techniques

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What type of shares are the zero-growth model useful for valuing?

Preferred shares (correct)

Bonds

Common shares

Warrants

What is the required rate of return for Investor CDE in the zero-growth model illustration?

12%

15% (correct)

20%

10%

What is the primary focus of share valuation techniques?

Identifying the cash flow an investor can receive in the future (correct)

Determining the market value of a share

Projecting the profitability of a company

Analyzing the financial statements of a company

What is the assumption about the growth rate in the constant growth model?

It is assumed to be lower than the required rate of return Signup and view all the answers

What is the name of the model also known as the constant growth model?

Gordon Growth Model Signup and view all the answers

What is the period valuation model used for?

Calculating the present value of future cash flows Signup and view all the answers

When is the first dividend assumed to be received in the constant growth model?

Right away Signup and view all the answers

What is the discounted cash flow approach based on?

The present value of future cash flows Signup and view all the answers

What is the expected dividend growth rate for Bavarian Sausage in the constant growth model illustration?

5% Signup and view all the answers

What is the required rate of return on ordinary shares used for in the period valuation model?

To calculate the present value of future cash flows Signup and view all the answers

What is the dividend-based valuation technique used for?

Valuing shares based on dividend payments Signup and view all the answers

What is the value of the shares of Flix Company based on BSA PA's computation?

Php 30 per share Signup and view all the answers

What is the dividend per share for the year 2021?

2.80 Signup and view all the answers

What is the limitation of the zero-growth and constant growth model?

It is not flexible in terms of growth rate expectations. Signup and view all the answers

What is the fourth step in the variable growth model?

Add the computed present value of the expected dividends and present value of the stock at the end of the initial growth period. Signup and view all the answers

What is the expected dividend growth rate of Vin Company in the next 3 years?

5% Signup and view all the answers

What is the purpose of the price-earnings ratio?

To show the amount that investors are willing to pay for each peso of earnings. Signup and view all the answers

What is the required return used by Vic in evaluating his investments?

12% Signup and view all the answers

What is the price of the stock today if the required return on investment is 14%?

$27.82 Signup and view all the answers

What is the implied dividend growth rate for Bavarian Sausage if the stock sells for $34.37?

5% Signup and view all the answers

If the cost of capital is 10% and the dividend is expected to grow at 3% indefinitely, what is the price of the firm's stock 4 years from today?

$90.49 Signup and view all the answers

If the required return on the stock investment is 14%, what should be the price of the stock in 5 years?

$39.19 Signup and view all the answers

What is the dividend payment expected next year for Bavarian Sausage?

$1.57 Signup and view all the answers

What is the expected dividend growth rate for Bavarian Sausage?

5% Signup and view all the answers

What is the primary purpose of using the average P/E ratio of an industry?

To compare the company's value with that of its peers Signup and view all the answers

A high P/E ratio may indicate that the market expects:

An increase in the company's earnings in the future Signup and view all the answers

What is a limitation of share valuation models?

They do not consider the company's risk profile Signup and view all the answers

Stock Valuation Techniques

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Questions and Answers

What type of shares are the zero-growth model useful for valuing?

What is the required rate of return for Investor CDE in the zero-growth model illustration?

What is the primary focus of share valuation techniques?

What is the assumption about the growth rate in the constant growth model?

What is the name of the model also known as the constant growth model?

What is the period valuation model used for?

When is the first dividend assumed to be received in the constant growth model?

What is the discounted cash flow approach based on?

What is the expected dividend growth rate for Bavarian Sausage in the constant growth model illustration?

What is the required rate of return on ordinary shares used for in the period valuation model?

What is the dividend-based valuation technique used for?

What is the value of the shares of Flix Company based on BSA PA's computation?

What is the dividend per share for the year 2021?

What is the limitation of the zero-growth and constant growth model?

What is the fourth step in the variable growth model?

What is the expected dividend growth rate of Vin Company in the next 3 years?

What is the purpose of the price-earnings ratio?

What is the required return used by Vic in evaluating his investments?

What is the price of the stock today if the required return on investment is 14%?

What is the implied dividend growth rate for Bavarian Sausage if the stock sells for $34.37?

If the cost of capital is 10% and the dividend is expected to grow at 3% indefinitely, what is the price of the firm's stock 4 years from today?

If the required return on the stock investment is 14%, what should be the price of the stock in 5 years?

What is the dividend payment expected next year for Bavarian Sausage?

What is the expected dividend growth rate for Bavarian Sausage?

What is the primary purpose of using the average P/E ratio of an industry?

A high P/E ratio may indicate that the market expects:

What is a limitation of share valuation models?

What happens when companies assume more risks?

What should investors be wary of when using valuation models?

What is the formula for calculating the price-to-earnings ratio?

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