Question: In this chapter, we examined nine stock valuation procedures:
• Zero-growth DVM
• Constant-growth DVM
• Variable-growth DVM
• Free cash flow to equity 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 nine procedures listed above, which three 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.