Which of the Following Statements Is CORRECT

question 63

Multiple Choice

Which of the following statements is CORRECT?

• A) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.
• B) If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• C) The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
• D) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
• E) The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

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Definitions:

Job Order Cost System

A type of cost accounting system that provides for a separate record of the cost of each quantity of product (job) that is manufactured.

Conversion Costs

The combined costs of direct labor and manufacturing overhead, representing the expenses necessary to convert raw materials into finished goods.

Direct Materials

Raw materials that can be directly associated with the production of goods or services and are considered a variable cost.

Equivalent Units

A concept in cost accounting used to convert the quantity of partially completed goods into a full equivalent number based on their stage of completion.