Valuation Models Use the Relationship Between Share Value, Future Cash

question 39

Multiple Choice

Valuation models use the relationship between share value, future cash flows, and the cost of capital to estimate these quantities for a given firm. Realistically, for a publicly traded firm, what can we reliably use such models to determine? I. the firm's future cash flows

• A) I only
• B) II only
• C) III only
• D) I and II

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Definitions:

Plowback Ratio

The proportion of earnings retained by a company for reinvestment in its operations rather than being paid out as dividends to shareholders.

Expected ROE

The projected Return on Equity, estimating the amount of net income returned as a percentage of shareholders' equity.

Required Rate Of Return

The lowest yearly return rate on an investment that motivates individuals or corporations to invest in a specific security or project.

Dividends Per Share

The amount of dividends that a company pays out to its shareholders for each share held, typically expressed on an annual basis.