Stock Values Computed by Valuation Models May Differ from Actual

question 33

Multiple Choice

Stock values computed by valuation models may differ from actual market prices because it is difficult to

• A) estimate future dividend growth rates.
• B) estimate the risk of a stock.
• C) forecast a stock's future dividends.
• D) all of the above are true.

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Definitions:

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the amount by which sales can drop before a business incurs a loss.

Break-even Point

The level of sales at which total revenues equal total costs, and the business makes no profit but also incurs no loss.

Break-even Analysis

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue, indicating no net loss or gain.

Operating Income

Income from a company's main business activities, excluding expenses such as interest and taxes.