ch 7 connect financial management
using a benchmark PE ratio against current earnings yields a forecasted price called a
target price
constant-growth model assumes that
dividends change at a constant rate
dividend/discount rate = D/R
represents the valuation of stock using a zero growth model
a benchmark PE ratio can be determined using:
- PEs of similar companies - a company's own historical PEs
what information do we need to determine the value of a stock using the zero growth model?
- discount rate - dividend
which one of the following is true about dividend growth patterns?
- dividends may grow at a constant rate
a PE ratio that is based on estimated future earnings is known as a ___________ PE ratio
- forward
the ________ can be interpreted as the capital gains yield.
- growth rate
preferred stock has preference over common stock in the:
- payment of dividends - distribution of corporate assets
which of the following ratios might be used to estimate the value of a stock?
- price/sales ratio - price/ earnings ratio
the dividend yield is determined by dividing the expected dividend (D1) by:
- the current price
which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
- the required rate of return is unobservable - dividends are unknown and uncertain - stock has no set maturity
which of the following are rights of common stock holders?
- the right to share proportionally in any residual value in the event of liquidation - the right to vote on matters of importance - the right to share proportionally in any common dividends paid.
which of the following are cash flows to investors in stocks?
-capital gains - dividends
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called _______ dividends.
-cumulative
in the dividend growth model, the expected return for investors comes from which two sources?
-dividend yield - growth rate
Three special case patterns of dividend growth discussed in the text include:
-non-constant growth - zero growth - constant growth