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Unformatted text preview: Chapter 9 Valuing Stocks Answers to Chapter 9 Review Questions 1. A share of stock gives its owner the right to elect board members, vote on certain transactions of the firm (such as mergers), and receive periodic dividend payments as a partial return on the investment in the stock. 2. The two components of the total return of the stock are the dividend payments and the capital appreciation (price change) of the stock. 3. The dividend-discount model states that the value of a share of stock should equal the present value of all future payments to be received from the stock. It is a direct application of the Valuation Principle. 4. There is a positive relation between the NPV of reinvesting cash flows and the price change in the stock. When NPV is positive, the stock price increases, and when NPV is negative, the stock price falls. 5. The dividend discount model is easily adaptable to multiple growth rates in dividends. Just forecast the dividends until the growth rate stays constant into perpetuity, then take the present value of the...
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- Spring '09