Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Which of the following pieces of information is required to determine the value of a stock using the zero-growth (perpetuity) dividend valuation model?

The annual dividend and the required rate of return

The expected growth rate of dividends

The book value per share

The market price of the stock

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Verified step by step guidance

Understand the zero-growth dividend valuation model, which assumes that dividends remain constant over time and do not grow. This model is based on the perpetuity formula for valuing cash flows.

Recall the formula for the zero-growth dividend valuation model: \( P_0 = \frac{D}{r} \), where \( P_0 \) is the price of the stock, \( D \) is the annual dividend, and \( r \) is the required rate of return.

Identify the key inputs needed for the formula: \( D \), the annual dividend, and \( r \), the required rate of return. These are the only variables required to calculate the stock's value under this model.

Note that the expected growth rate of dividends, the book value per share, and the market price of the stock are not relevant for the zero-growth model because it assumes no growth in dividends and focuses solely on the perpetuity of constant dividends.

Conclude that to determine the value of a stock using the zero-growth dividend valuation model, you need the annual dividend (\( D \)) and the required rate of return (\( r \)).