Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) Two firms with the same expected free cash flows and growth rates must also have the same value of operations.
• B) It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
• C) If a company has a weighted average cost of capital WACC = 12%, and if its free cash flows are expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• D) The value of operations is the present value of all expected future free cash flows, discounted at the free cash flow growth rate.
• E) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

---

Definitions:

Tax Return

A tax return is a form filed with a tax authority that reports income, expenses, and other pertinent tax information. Taxes owed or a refund owed to the taxpayer are determined through this form.

Roofer

A professional who specializes in the construction, repair, and installation of roofs.

Nontaxable Income

Income that is not subject to income tax at the federal, state, or local level.

Alimony Payment

A financial support that one ex-spouse is legally obligated to provide to the other during or after the process of legal separation or divorce.