1. Which of the following statements is FALSE?

a.The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.

b.One assumption used to forecast for the firm's future dividends is that the dividends will grow at a constant rate, g, forever.

c.Compared to bond coupon payments, there is a lot of uncertainty associated with any forecast of a firm's future dividends.

d.According to the constant dividend growth model, the value of the firm depends on the current dividend level divided by the equity cost of capital plus the growth rate, g.

2. Which of the following is true about capital budgeting?

a.It involves identifying projects that will increase the firm'sdebt.

b.It involves looking at the stock prices of the firm's competitors.

c.It involves looking backward at the firm's cash flows and debtuse.

d.It involvesanalyzing potential business opportunities and deciding on which ones to undertake.