In the Gordon Model, the Value of the Common Stock

question 23

Multiple Choice

In the Gordon model, the value of the common stock is the

• A) present value of a nongrowing dividend stream.
• B) present value of a constant, growing dividend stream.
• C) net value of all assets which are liquidated for their exact accounting value.
• D) actual amount each common stockholder would expect to receive if the firm's assets are sold, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

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Definitions:

Tender Offer

A public and open offer, often by a company, to purchase a significant portion of its own shares or those of another company at a specified price, which is usually at a premium to the market price.

In Play

A company is in play when it is the object of an acquisition attempt.

Acquisition Target

A company or business that is considered a potential candidate for purchase by another company.

Terminal Value

The estimated value of a business or project beyond the forecast period when future cash flows can be assumed to grow at a steady rate.