When Determining the Value of a Share by the Dividend-Based

question 25

Multiple Choice

When determining the value of a share by the Dividend-Based Approach, which of the following provides the best reason for the life time of the business being the relevant timeframe over which to consider the dividend stream?

• A) It is always recommended that shares be held over the long term.
• B) The NPV of the future dividend stream will determine the price of the share whenever it is sold.
• C) The inaccuracies inherent in this method are less of a problem than the inaccuracies inherent in other valuation methods.
• D) It is easy to estimate the lifetime of a corporation based on historical averages.
• E) Individuals planning to hold shares for the short term can adjust the share's value proportionally to the length of time they hold the share.

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Definitions:

Price Ceilings

A legal maximum on the price at which a good can be sold, often set by government.

Sellers

Sellers are individuals or entities that offer goods or services in exchange for payment.

Price Ceilings

A legal maximum price set by the government for goods or services, intended to protect consumers by preventing prices from rising above a certain level.

Buyers

Individuals or entities that purchase goods or services for personal use, business operations, or for resale purposes.