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Using the dividend valuation method, an analyst determines the value of Company A's stock to be $10 and the value of Company B's stock to be $14.
Using the dividend valuation method, an analyst determines the value of Company A's stock to be $10 and the value of Company B's stock to be $14. Based on this information, which of the following statements is most accurate?
A. Company B must be riskier than Company A, and risk requires a reward.
B. Other things being equal, if Company A and Company B have the same firm value, Company B must have more debt, thus leveraging its returns for the benefit of shareholders.
C. Other things being equal, if Company A and Company B have the same firm value, Company A may have more shares of stock outstanding than Company B.
D. Company B's required rate of return is higher than Company A's required return.
Which is the correct answer?
