The Dividend Growth Model

question 190

Multiple Choice

The dividend growth model:

• A) Generally produces the same estimated cost of equity for a firm regardless of the source of information used to predict the rate of growth.
• B) Can only be used if historical dividend information is available.
• C) Ignores the risk that future dividends may vary from their estimated values.
• D) Assumes that both the dividend amount and the stock price are not constant over time.
• E) Uses beta to measure the systematic risk of the firm.

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Definitions:

Balance Sheet

An accounting summary that captures a firm's financial status at a particular instant, outlining the company's resources, obligations, and equity held by shareholders.

Ledger

A book or collection of financial accounts where financial transactions are recorded.

Cash Payment

A transaction where a payment is made using physical currency or through electronic funds transfer, directly settling an obligation.

Cash Account

An account that records cash transactions, including cash received and disbursed, maintained by a company to keep track of its liquid assets.