In the DDM, the expected stock return is equal to the expected capit

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False: In the DDM, the expected stock return is equal to the expected capital gain plus the expected div. yield. False: The intrinsic value given by a two stage DCF model will exceed the intrinsic value given by the H model if all the inputs (eg. Growth rates, DPS, Ke) are identical. True: In the context of DCF, increasing financial leverage can lead to a lower ROE if and only if ROC is smaller than the after-‐tax cost of debt. True: In DCF valuation, a series of cash flows that decrease forever at the rate of 10% p.a with a risk-‐adjusted rate of 9% has a finite present value. True: In the context of the DDM, an increase in the reinvestment rate will result in an increase in the intrinsic value per share, if and only ROE > re. False: The free cash flow to equity is equal to the dividend paid to the shareholders of the firm. True: According to the CAPM, an asset with a zero beta will have a zero risk premium. True: Capitalizing operating lease expenditures will tend False: In to increase a company’s the context of operating profit. CAPM & DDM, a higher leverage ratio will result in a False: Capitalizing R&D higher intrinsic equity value. expenditures will tend to increase a company’s True: I
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ontext of DDM, it may be operating profit. reasonable to forecast a negative growth rate for future dividends but it is never reasonable to have a negative intrinsic False: In the DDM, a higher value per share. leverage ratio will result in a higher intrinsic equity value. True: In the context of the CAPM, the risk-‐free rate must be free from both default risk and reinvestment risk. True: In the context of DDM, a company with div. payout ratio of 100% will have a zero expected growth rate of future True: If a company delays payment of equity free cash flow to shareholders div. until future periods, then the intrinsic value of the company will decrease. False: In DCF valuation, an infinite stream of cash flows that increase at the rate of 8% p.a with a risk-‐adjusted discount rate of 8% has finite present value. True: In the context of the dividend discount model, an increase in the reinvestment rate will result in a higher intrinsic value per share, if and only if ROE > re. False: In the framework of the CAPM model, if two companies’ stock returns must be the same. False: If stock markets are inefficient then stock prices are irrelevant when trying to determine whether a stock is overvalued or undervalued. True: According to CAPM, an asset with a positive beta will necessarily have an expected return that is higher than the risk-‐free rate of return. False: In the framework of DCF, discounting nominal cash flows with a real discount rate will understate the true intrinsic value. False: in a 2-‐stage DDM, the forecast growth rate in the first stage has to be less than the required rate of return on equity in the first stage in order for the intrinsic value per share to be finite.

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