About Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates. Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model. Other variables held constant, there is an inverse relation between stock prices and interest rates. By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
About Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates. Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model. Other variables held constant, there is an inverse relation between stock prices and interest rates. By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter11: Determining The Cost Of Capital
Section: Chapter Questions
Problem 3MC
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In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates.
Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model.
Other variables held constant, there is an inverse relation between stock prices and interest rates.
By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
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