The Basic Dividend-Discount Model Is a Bit of an Oversimplification

question 110

Multiple Choice

The basic dividend-discount model is a bit of an oversimplification for valuing stocks because:

• A)It ignores expected dividend growth.
• B)It ignores the value of future dividends.
• C)It ignores the risk involved in holding stocks.
• D)It cannot handle stocks that do not pay dividends.

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Definitions:

Functional Currency

The primary currency of the primary economic environment in which an entity operates, used in generating and expending cash.

Exchange Rates

The worth of one currency when converted to another, establishing how much one currency can be exchanged for another.

Operating Expense

Recurring expenses incurred during normal business operations, such as rent, utilities, and salaries.

Parent Corporation

A larger corporation that owns more than half the stock of another firm, allowing it to control the subsidiary's management and operations.