M6-Financial Valuation Methods: Part 1

Question 1

An underlying assumption of the constant growth model is the idea that the stock price will grow at the same rates as the dividend, thereby producing a constant growth rate. (true or false)

Answer 1

true

Question 2

The price sales ratio uses sales per share as a basis for valuation and can be used in start-up situations or under conditions where earnings data is not meaningful. (true or false)

Answer 2

true

Question 3

The price earnings (P/E) ratio measures the amount that investors are willing to pay for each dollar of earnings per share. Higher P/E ratios generally indicate that investors are anticipating more growth and are bidding up the price of the shares in advance of performance. (true or false)

Answer 3

true