Question #25
Reading: Reading 19 Equity Valuation - Applications and Processes
PDF File: Reading 19 Equity Valuation - Applications and Processes.pdf
Page: 9
Status: Correct
Correct Answer: A
Question
Overestimating the growth rate of a firm in using a valuation model would result in a value that is likely to be:
Answer Choices:
A. too high
B. can't tell from this information
Explanation
Using an estimate for a firm's growth rate that is too high would overstate the amount of
future returns, resulting in a present value that is too high.