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the future. Under these conditions, which of the following statements is most correct?

the future. Under these conditions, which of the following statements is most correct?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose a stock
Suppose a stock is not currently paying dividendd, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? O Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. O Such a stock should have a value of zero until it actually begins paying dividends. O Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: PO = D1/(r - g). O The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount.
Transcribed Image Text:Suppose a stock is not currently paying dividendd, and its management has announced that it will not pay a dividend for several years, but that it does expect to start paying dividends sometime in the future. Under these conditions, which of the following statements is most correct? O Under these conditions, we can estimate a value for the stock, but we cannot use any form of the constant growth DCF model to do so. O Such a stock should have a value of zero until it actually begins paying dividends. O Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: PO = D1/(r - g). O The value of the stock can be found using DCF procedures by finding the present value of expected future dividends accounting for their timing and amount.
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