Which of the Following Statements Is CORRECT

question 1

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, vop = 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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Definitions:

Production Possibilities

A curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors.

Economic Efficiency

Economic efficiency occurs when resources are optimally allocated to serve the needs of a society without any waste.

International Trade

involves the exchange of goods and services across international borders, influenced by comparative advantages, exchange rates, and global economic policies.