Which of the Following Is a Criticism of the Traditional

question 2

Multiple Choice

Which of the following is a criticism of the traditional discounted cash flow method?

• A)It is biased against short-term projects.
• B)It tends to ignore the direct cash flows.
• C)It tends to focus on what can easily be quantified.
• D)It cannot be applied to value securities which have an expected rate of return greater than their dividend growth rate.

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Definitions:

Paid-in Capital

The amount of money that a company has received from shareholders in exchange for shares of stock, beyond the par value of the shares.

Retained Earnings

The portion of a company's profits that is kept or retained and not paid out as dividends to shareholders, often used for reinvestment in the business or to pay off debt.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, often with fixed dividends.

Common Stock

A type of equity security that represents ownership in a corporation, entitling the holder to dividends and, in many cases, voting rights.