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Fundamentals Of Corporate Finance Study Set 21

Business

Quiz 8 :

Stock Valuation

Quiz 8 :

Stock Valuation

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Assume the anticipated growth rate in dividends is constant for Fly-By-Nite Airlines. The expected value of the firm's stock at the end of four years (P4) can be calculated using D5/(r - g) and P0 (1 + g)4.
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True False
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The total rate of return earned on a stock is comprised of the dividend yield and the capital gains yield.
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True False
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True

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The dividend growth model assumes that dividends increase at a constant rate forever.
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True False
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True

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According to the constant growth model, the dividend yield is equal to the required return minus the dividend growth rate.
True False
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All else constant, a decrease in the dividend amount will increase the dividend yield of a stock.
True False
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Payment of dividends is a tax deductible business expense for a corporation.
True False
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Dividends on the common stock of Stable Inc. are expected to grow at a constant rate forever. If you are told Stable's most recent dividend paid, its dividend growth rate, and a discount rate, you can only calculate the price now, from the past and into the future.
True False
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All else constant, an increase in the dividend amount will increase the dividend yield of a stock.
True False
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The total return on a share of stock = dividend yield + capital gains yield.
True False
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Dividends on the common stock of Stable Inc. are expected to grow at a constant rate forever. If you are told Stable's most recent dividend paid, its dividend growth rate, and a discount rate, you can only calculate the price into the future.
True False
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When the constant dividend growth model holds, g = capital gains yield.
True False
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A decrease in the dividend growth rate will increase a stock's market value, all else the same.
True False
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An increase in the required return on a stock will decrease its market value, all else the same.
True False
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Dividends received by both individuals and corporations are fully taxable.
True False
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All else constant, a decrease in the stock price will increase the dividend yield of a stock
True False
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Dividends on the common stock of Stable Inc. are expected to grow at a constant rate forever. If you are told Stable's most recent dividend paid, its dividend growth rate, and a discount rate, you can only calculate the price now.
True False
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The dividend growth model can be used to compute a stock price at any point of time.
True False
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If one uses the constant growth model to value stock, one assumes that P1 = P0 (1 + g), P2 = P0 (1 + g), etc.
True False
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Dividends paid by a corporation can reduce the taxable income of the corporation.
True False
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All else constant, an increase in the stock price will increase the dividend yield of a stock.
True False
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