Stephen Used the Dividend Discount Model to Determine That the Price

question 52

Multiple Choice

Stephen used the dividend discount model to determine that the price of a stock should be $23.50. Stephen checks on the internet and finds the latest price quoted for the stock is $27.00. What should he do?

• A) Buy the stock at $27.00
• B) Sell the stock at $27.00, or sell short if he does not own it
• C) Do nothing, as his estimate of the intrinsic value may be off as much as 15%
• D) Buy the stock at $23.50 because that is all it is worth

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Definitions:

Manufacturing Overhead

All manufacturing costs that are not direct materials or direct labor, which include expenses such as rent, utilities, and salaries for supervisors.

Activity-Based Costing

Activity-Based Costing (ABC) is a method of allocating overhead and indirect costs to specific products or activities based on their consumption of resources, assisting in more accurate product costing.

Total Quality Management

A comprehensive approach to long-term success that views continuous improvement in all aspects of an organization's operations as a process and not as a short-term goal.

Balanced Scorecard

A method for planning and managing strategy that aligns organizational activities with its vision and strategy, enhances communication both internally and externally, and tracks progress towards achieving strategic objectives.