FINA3015 ch 9

The value of a stock today can be calculated as the present value of ________ stream of dividends

an infinite

Common stock dividends _________ specified by contract—they depend on the firm's earnings.

are not

When investing in common stocks, an investor's goal is to purchase stocks that are undervalued (the price is _________ the stock's intrinsic value) and avoid stocks that are overvalued.

below

The __________ model is an alternative model used to value a firm, especially one that does not pay dividends or is privately held. This model calculates the firm's free __________ , and then finds their present values at the firm's weighted average cost of capital to determine a firm's value.

corporate valuation cash flows

The _____________ model values a common stock as the present value of its expected future cash flows at the firm's required rate of return on equity

discounted dividend

Market equilibrium occurs when the stock's price is _________ its intrinsic value

equal to

____________ are generally forecasted for 5 to 10 years, after which it is assumed that the final forecasted free cash flow will grow at some long-run constant rate

free cash flows

Which of the following assumptions would cause the constant growth stock valuation model to be invalid? The growth rate is zero. The growth rate is negative. The required rate of return is greater than the growth rate. The required rate of return is more than 50%. None of the above assumptions would invalidate the model.

last one

Common stock represents the __________ position in a firm, and is valued as the present value of its expected future _________ stream.

ownership dividend

the constant growth model is not appropriate unless a company's growth rate is expected to remain constant in the future. This condition almost never holds for _______ firms, but it does exist for many ________ companies

start up mature

The value of a share of common stock depends on the _______ it is expected to provide, and those flows consist of the _______ the investor receives each year while holding the stock and the price the investor receives when the stock is sold.

cash flows dividends

The market value of a firm is equal to the _________ of its expected future free cash flows plus the _________ of its non-operating assets

present value market value

Two models are used to estimate a stock's intrinsic value:

the discounted dividend model and the corporate valuation model