Using the Dividend Valuation Method,an Analyst Determines the Value of Company

question 58

Multiple Choice

Using the dividend valuation method,an analyst determines the value of Company A's stock to be $10 and the value of Company B's stock to be $14.Based on this information,which of the following statements is most accurate?

• A) Company B must be riskier than Company A, and risk requires a reward.
• B) Other things being equal, if Company A and Company B have the same firm value, Company B must have more debt, thus leveraging its returns for the benefit of shareholders.
• C) Other things being equal, if Company A and Company B have the same firm value, Company A may have more shares of stock outstanding than Company B.
• D) Company B's required rate of return is higher than Company A's required return.

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