MKTG (with Marketing CourseMate with eBook Printed Access Card)

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 7 EQUITY MARKETS AND STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions1. The value of any investment depends on its cash flows; i.e., what investors will actually receive.The cash flows from a share of stock are the dividends. 2. Investors believe the company will eventually start paying dividends (or be sold to anothercompany). 3. In general, companies that need the cash will often forgo dividends since dividends are a cashexpense. Young, growing companies with profitable investment opportunities are one example;another example is a company in financial distress. This question is examined in depth in a laterchapter. 4. The general method for valuing a share of stock is to find the present value of all expected futuredividends. The dividend growth model presented in the text is only valid (i) if dividends areexpected to occur forever; that is, the stock provides dividends in perpetuity, and (ii) if a constantgrowth rate of dividends occurs forever. A violation of the
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 03/07/2012.

Page1 / 2


This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online