Which of the following statements are correct regarding estimating the continuin

Question

Which of the following statements are correct regarding estimating the continuing value.

1-Estimating the continuing value of the firm as a market multiple is best used when the stock market is undervalued
2-Estimating the continuing value of the firm using the dividend growth model is more theoretically appealing, particularly when the growth rate of the unlevered cash flows is greater than the weighted average cost of capital.
3-The growth rate in the continuing cash flows is often estimated using the internal growth rate.
4-All of the above are correct.
5-None of the above are correct.

Explanation / Answer

1-Estimating the continuing value of the firm as a market multiple is best used when the stock market is undervalued
2-Estimating the continuing value of the firm using the dividend growth model is more theoretically appealing, particularly when the growth rate of the unlevered cash flows is greater than the weighted average cost of capital.
3-The growth rate in the continuing cash flows is often estimated using the internal growth rate.
4-All of the above are correct.
5-None of the above are correct.

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