If the Model Below Is to Give a "Reasonable" Valuation

question 102

Multiple Choice

If the model below is to give a "reasonable" valuation of a stock, which of the following is not a valid assumption for the model?

• A) Growth, g, is negative.
• B) There will be no growth, i.e., g is zero.
• C) The growth rate exceeds the required rate of return.
• D) The required return is exceptionally high (r_s > 30%).
• E) All of the above are workable assumptions and are valid in the sense that the model can be used even if they hold true.

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Definitions:

Influence

The capacity to have an effect on the character, development, or behavior of someone or something, or the effect itself.

Venture Capital

Financing provided to new business ventures by professional, outside investors—that is, venture capitalists, usually groups of wealthy investors and securities firms.

Securities

Generally, stocks, bonds, or other items that represent an ownership interest in a corporation or a promise of repayment of debt by a corporation.

Ownership Share

The portion of a company or property legally owned by an individual or entity, often represented as a percentage.