You are trying to estimate the intrinsic value of the shares of Flying High Ltd, a manufacturer of unmanned aerial vehicles, or drones. The company is headquartered in Melbourne, and sells its drones throughout Australia and New Zealand. It is a public company, but is not yet listed on the stock exchange. There are 30,000 shares outstanding.

The firm pays an annual dividend. The most recent dividend was $2.6.

Under what circumstances would you use the Dividend Discount Model to value this stock?

a.EPS for the last year was $3.25, the dividend policy is to always pay 80% of the EPS as a dividend, and the reason you are valuing the stock is because you are thinking of taking over the firm.

b.The dividend is always $2.6, irrespective of EPS, and the reason you are valuing the stock is because you are thinking of taking over in the firm.

c.The dividend is always $2.6, irrespective of EPS, and the reason you are valuing the stock is because you are thinking of investing in the firm.

d.EPS for the last year was $3.25, the dividend policy is to always pay 80% of the EPS as a dividend, and the reason you are valuing the stock is because you are thinking of investing in the firm.

Answer rating: 100% (QA)

The Dividend Discount Model DDM is typically used to value a s... View the full answer