Which of the Following Is True Regarding the Use of the Dividend

question 27

Multiple Choice

Which of the following is true regarding the use of the dividend growth model for estimating the cost of equity capital?

• A) A key advantage to this model is its high degree of complexity.
• B) The results from this model are not sensitive to changes in the dividend growth rate.
• C) One method of estimating future growth rates is the use of historical growth rates.
• D) The model works particularly well for companies that maintain a mostly unsteady dividend growth rate.
• E) The model explicitly considers risk.

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Definitions:

Marginal Utility

The heightened satisfaction or value achieved by consuming one additional unit of a product or service.

Criminal Behavior

Conduct by an individual that violates societal laws and is subject to sanctions and legal penalties.

Probability

A measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 1 represents certainty.

Marginal Utility

The additional satisfaction or benefit one receives from consuming one more unit of a good or service.