Reading 56: An Introduction to Security Valuation- LOS d～ company, required, increase, decrease, discount

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Q25. All else equal, if a firm’s return on equity (ROE) increases, the stock’s value as estimated by the constant growth dividend discount model (DDM) will most likely:

A)   not change.

B)   decrease.

C)   increase.

 

Q26. Assume a company's ROE is 14% and the required return on equity is 13%. All else remaining equal, if there is a decrease in a firm’s retention rate, a stock’s value as estimated by the constant growth dividend discount model (DDM) will most likely:

A)   increase.

B)   either increase or decrease.

C)   decrease.

 

Q27. All else equal, an increase in a company’s growth rate will most likely cause its P/E ratio to:

A)   increase.

B)   decrease.

C)   either increase or decrease.

 

Q28. According to the earnings multiplier model, all else equal, as the dividend payout ratio on a stock increases, the:

A)   P/E ratio will decrease.

B)   P/E ratio will increase.

C)   required return on the stock will decrease.

 

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