The dividend discount model a ignores capital gains b

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91.The dividend discount modelA)ignores capital gains.B)incorporates the after-tax value of capital gains.C)includes capital gains implicitly.D)restricts capital gains to a minimum.E)none of the above.Answer: CDifficulty: ModerateRationale: The DDM includes capital gains implicitly, as the selling price at any pointis based on the forecast of future dividends.
92.Many stock analysts assume that a mispriced stock willDifficulty: ModerateRationale: Many analysts assume that mispricings may take several years to gradually
correct.93.Investors want high plowback ratiosDifficulty: EasyRationale: Investors prefer that firms reinvest earnings when ROE exceeds k.
94.Because the DDM requires multiple estimates, investors should
Chapter 18Equity Valuation Models95.According to Peter Lynch, a rough rule of thumb for security analysis is thatA)the growth rate should be equal to the plowback rate.B)the growth rate should be equal to the dividend payout rate.C)the growth rate should be low for emerging industries.D)the growth rate should be equal to the P/E ratio.E)none of the above.Answer: DDifficulty: ModerateRationale: A rough guideline is that P/E ratios should equal growth rates in dividendsor earnings.
96.For most firms, P/E ratios and risk

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Term
Fall
Professor
N/A
Tags
Stock Valuation, Valuation, Dividend yield, P E ratio, Equity Valuation Models

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