Question

In this chapter, we examined 9 stock valuation procedures:
• Zero-growth DVM
• Constant-growth DVM
• Variable-growth DVM
• Dividends-and-earnings (D&E) approach
• Expected return (IRR) approach
• P/E approach
• Price-to-cash-flow ratio
• Price-to-sales ratio
• Price-to-book-value ratio
a. Which one (or more) of these procedures would be appropriate when trying to put a
value on:
1. A growth stock that pays little or nothing in dividends?
2. The S&P 500?
3. A relatively new company that has only a brief history of earnings?
4. A large, mature, dividend-paying company?
5. A preferred stock that pays a fixed dividend?
6. A company that has a large amount of depreciation and amortization?
b. Of the 9 procedures listed above, which 3 do you think are the best? Explain.
c. If you had to choose just one procedure to use in practice, which would it be? Explain.


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  • CreatedApril 28, 2015
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