A Model Used to Value the Stock of a Company

question 107

Multiple Choice

A model used to value the stock of a company that does not pay dividends is the ____ model

• A) Net profit
• B) Internal cash flow
• C) Internal growth
• D) Reinvested growth
• E) Residual income

---

Definitions:

Interest Tax Shield

A deduction allowed for the interest paid on debt, thereby reducing taxable income and the total tax owed.

M&M Proposition I

outlines that in a perfect market, without taxes and transaction costs, a company's value is unaffected by its capital structure.

Direct Bankruptcy Costs

The expenses incurred by a company when going through the process of declaring bankruptcy, including legal fees, accounting fees, trustee fees, and other associated administrative expenses.

Pre-Packaged Bankruptcy

A plan for financial reorganization that a company prepares in cooperation with its creditors before filing for bankruptcy.