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Question
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.
Answer
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