{"id":54264,"date":"2024-04-16T00:07:12","date_gmt":"2024-04-16T00:07:12","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=54264"},"modified":"2024-04-16T00:07:12","modified_gmt":"2024-04-16T00:07:12","slug":"if-ke-r-then-under-walters-model-which-of-the-following-is-irrelevant","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/if-ke-r-then-under-walters-model-which-of-the-following-is-irrelevant\/","title":{"rendered":"If ke = r, then under Walter&#8217;s Model, which of the following is irrelevant?"},"content":{"rendered":"<p>\r\n    <!-- Check if it's an AMP page -->\r\n            <!-- Non-AMP version -->\r\n        <div class=\"mcq-container\" data-quiz-id=\"quizState_6a9806f6b8821\">\r\n                                            <div class=\"option\" data-option-key=\"option1\" data-is-correct=\"true\">\r\n                    Earnings per share                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option2\" data-is-correct=\"false\">\r\n                    Dividend per share                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option3\" data-is-correct=\"false\">\r\n                    DP Ratio                <\/div>\r\n                                            <div class=\"option\" data-option-key=\"option4\" data-is-correct=\"false\">\r\n                    None of the above                <\/div>\r\n                            \r\n            <!-- Feedback messages for non-AMP -->\r\n            <div class=\"feedback\" data-feedback=\"wrong\">Answer is Right!<\/div>\r\n            <div class=\"feedback\" data-feedback=\"right\">Answer is Wrong!<\/div>\r\n        <\/div>\r\n\r\n        <script>\r\n        document.addEventListener('DOMContentLoaded', function () {\r\n            var containers = document.querySelectorAll('.mcq-container');\r\n\r\n            containers.forEach(function(container) {\r\n                var options = container.querySelectorAll('.option');\r\n                var feedbackSelect = container.querySelector('[data-feedback=\"select\"]');\r\n                var feedbackWrong = container.querySelector('[data-feedback=\"wrong\"]');\r\n                var feedbackRight = container.querySelector('[data-feedback=\"right\"]');\r\n\r\n                options.forEach(function(option) {\r\n                    option.addEventListener('click', function() {\r\n                        var selectedOption = option.getAttribute('data-option-key');\r\n                        var isCorrect = option.getAttribute('data-is-correct') === 'true';\r\n\r\n                        \/\/ Remove previous selections\r\n                        options.forEach(function(opt) {\r\n                            opt.classList.remove('correct', 'incorrect');\r\n                        });\r\n\r\n                        \/\/ Add the correct\/incorrect class\r\n                        if (isCorrect) {\r\n                            option.classList.add('correct');\r\n                            feedbackRight.hidden = false;\r\n                            feedbackWrong.hidden = true;\r\n                        } else {\r\n                            option.classList.add('incorrect');\r\n                            feedbackRight.hidden = true;\r\n                            feedbackWrong.hidden = false;\r\n                        }\r\n\r\n                        \/\/ Hide select feedback\r\n                        feedbackSelect.hidden = true;\r\n                    });\r\n                });\r\n            });\r\n        });\r\n        <\/script>\r\n    \r\n    <!--more--><\/p>\n<p>The correct answer is: <strong>A. Earnings per share<\/strong><\/p>\n<p>Walter&#8217;s model is a dividend discount model that is used to estimate the value of a stock. The model assumes that the value of a stock is equal to the present value of its future dividends. The model can be written as follows:<\/p>\n<p>$P_0 = \\frac{D_1}{r &#8211; g}$<\/p>\n<p>where:<\/p>\n<ul>\n<li>$P_0$ is the current price of the stock<\/li>\n<li>$D_1$ is the dividend that the company is expected to pay in the next year<\/li>\n<li>$r$ is the required rate of return<\/li>\n<li>$g$ is the <div class=\"youtube-subscribe-container\">\r\n        <a href=\"https:\/\/www.youtube.com\/channel\/UCNHT8lW-JmLC68rjBfZhdkg?sub_confirmation=1\" target=\"_blank\" class=\"youtube-subscribe-button\">\r\n            <span class=\"youtube-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 576 512\">\r\n                    <path d=\"M549.7 124.1c-6.3-23.7-24.8-42.3-48.3-48.6C458.8 64 288 64 288 64S117.2 64 74.6 75.5c-23.5 6.3-42 24.9-48.3 48.6-11.4 42.9-11.4 132.3-11.4 132.3s0 89.4 11.4 132.3c6.3 23.7 24.8 41.5 48.3 47.8C117.2 448 288 448 288 448s170.8 0 213.4-11.5c23.5-6.3 42-24.2 48.3-47.8 11.4-42.9 11.4-132.3 11.4-132.3s0-89.4-11.4-132.3zm-317.5 213.5V175.2l142.7 81.2-142.7 81.2z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Subscribe on YouTube\r\n        <\/a>\r\n    <\/div> growth rate of dividends<\/li>\n<\/ul>\n<p>If $ke = r$, then the required rate of return is equal to the growth rate of dividends. This means that the value of the stock is equal to the present value of its future dividends, which are growing at a constant rate. In this case, earnings per share are irrelevant because they do not affect the value of the stock.<\/p>\n<p>Earnings per share (EPS) is a measure of a company&#8217;s profitability. It is calculated by dividing a company&#8217;s net income by the number of shares outstanding. EPS is often used as a measure of a company&#8217;s performance and as a benchmark for comparing companies in the same industry.<\/p>\n<p>However, EPS is not always a reliable measure of a company&#8217;s value. This is because EPS can <div class=\"telegram-channel-container\">\r\n        <a href=\"https:\/\/t.me\/pscnotes2025\" target=\"_blank\" class=\"telegram-channel-button\">\r\n            <span class=\"telegram-icon\">\r\n                <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 496 512\">\r\n                    <path fill=\"white\" d=\"M248,8C111,8,0,119,0,256s111,248,248,248s248-111,248-248S385,8,248,8z M362,177L320,367c-3,14-10,18-20,14l-56-41l-27,26 c-3,3-5,5-10,5l4-63L323,196c5-5-1-7-8-3l-98,62l-42-13c-9-3-10-9,2-14l162-63C351,160,365,164,362,177z\"\/>\r\n                <\/svg>\r\n            <\/span>\r\n            Join Our Telegram Channel\r\n        <\/a>\r\n    <\/div> be manipulated by companies through accounting practices. For example, a company can increase its EPS by buying back shares, which reduces the number of shares outstanding. This can make EPS look higher than it actually is.<\/p>\n<p>In addition, EPS does not take into account a company&#8217;s debt load or its capital structure. A company with a lot of debt may have a high EPS, but it may also be a risky investment.<\/p>\n<p>For these reasons, EPS is not always a reliable measure of a company&#8217;s value. In the case of Walter&#8217;s model, EPS is irrelevant because the model assumes that the value of a stock is equal to the present value of its future dividends, which are growing at a constant rate.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Subscribe on YouTube<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>If ke = r, then under Walter&#039;s Model, which of the following is irrelevant?<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/if-ke-r-then-under-walters-model-which-of-the-following-is-irrelevant\/\" \/>\n<meta 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