Which of the Following Statements Is CORRECT

question 46

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, V_op = 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:

Self-fulfilling Prophecy

A belief or expectation that influences behavior in a way that causes the belief to become a reality.

Stereotype

A set of beliefs and expectations about members of a group that are held simply because of their membership in the group.

Multitasking

The ability to perform multiple tasks at the same time.

Processing Channel

Refers to the means by which information is encoded, stored, and retrieved by the cognitive system, often differentiated into verbal and nonverbal channels.