In this chapter, we examined 9 stock valuation procedures:

• Zero-growth DVM

• Constant-growth DVM

• Variable-growth DVM

• Dividends-and-earnings (D&E) 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 9 procedures listed above, which 3 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.