A Common Problem When the Sustainable Growth Rate to Estimate

question 9

Multiple Choice

A common problem when the sustainable growth rate to estimate a stock's intrinsic value is:

• A) disagreement over how to calculate the company's ROE.
• B) the use of a discount rate that is greater than payout ratio.
• C) the unpredictable nature of dividend payouts
• D) sensitivity to year-to-year fluctuations in a company's earnings
• E) the need for growth companies to retain a greater proportion of earnings than value companies

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Definitions:

Backed by Gold

Refers to a currency that is guaranteed by gold reserves, meaning its value is supported by the amount of gold held by the issuing authority.

Paper Currency

Money in the form of paper notes issued by the government or central bank, representing a legal tender for transactions.

Medium of Exchange

A medium of exchange is a system or object that is widely accepted as payment for goods and services.

Transaction Costs

The expenses incurred when buying or selling goods or services, including costs of gathering information, negotiating, and enforcing contracts.