Dividend discount model and free cash flow to equity model

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Reference no: EM131866145

1. Which of the following statements regarding intrinsic value and market price is true If intrinsic value is greater than the current market price, the stock should be avoided or, if already held, sold

If intrinsic value is less than the current market price, the stock is undervalued

If intrinsic value is equal to the current market price, the stock is correctly valued

If the intrinsic value is greater than the current market price, the stock is considered speculative

2. A major difference between the dividend discount model (DDM) and the free cash flow to equity model (FCFE) is that the FCFE :

accounts for potential capital gains and the DDM does not

measures what a firm could pay out in dividends and the DDM measures what is actually paid

measures both dividend growth and stability and the DDM only measures the dividend growth

bases its calculations on future value techniques while the DDM uses present value calculations

Reference no: EM131866145

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