Which of the Following Statements Is CORRECT

question 46

Multiple Choice

Which of the following statements is CORRECT?

• A) If a company has a WACC = 12% and its free cash flow is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• B) The free cash flow valuation model for constant growth, V_op = FCF₁/(WACC − g), can be used to value firms whose free cash flows are expected to decline at a constant rate, i.e., to grow at a negative rate.
• C) The value of operations of a stock is the present value of all expected future free cash flows, discounted at the free cash flow growth rate.
• D) The constant growth model cannot be used for a zero growth stock, where free cash flows are expected to remain constant over time.
• E) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

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