2. Valuation Techniques

Stock Valuation — Quiz

Test your understanding of stock valuation with 5 practice questions.

Practice Questions

Question 1

Why must the required rate of return $r$ exceed the perpetual growth rate $g$ in the Gordon Growth Model?

Question 2

A stock just paid a dividend of $D_0=3.00$. Dividends grow at $g=5\\%$ and the required return is $r=9\\%$. What is the intrinsic value $P_0$ using the Gordon Growth Model?

Question 3

In a two‐stage dividend discount model with $D_0=2.00$, high growth $g_1=10\\%$ for two years, then constant growth $g_2=4\\%$, and required return $r=8\\%$, what is the expression for the terminal value at time $t=2$?

Question 4

A firm’s next‐year free cash flow to equity is $FCFE_1=80$ million, expected to grow at $g=6\\%$ indefinitely, and its cost of equity is $r=12\\%$. What is the value of its equity according to the constant‐growth FCFE model?

Question 5

A company’s next‐year free cash flow to firm is $FCFF_1=150$ million, expected to grow at $g=3\\%$ and the WACC is $10\\%$. What is the enterprise value using the constant‐growth FCFF model?