In the Gordon Model, the Value of the Common Stock

question 23

Multiple Choice

In the Gordon model, the value of the common stock is the

• A) present value of a nongrowing dividend stream.
• B) present value of a constant, growing dividend stream.
• C) net value of all assets which are liquidated for their exact accounting value.
• D) actual amount each common stockholder would expect to receive if the firm's assets are sold, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

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Definitions:

Linear Equations

Equations of the first degree, meaning they involve only linear terms and have graphs that are straight lines.

Consistent

In the context of systems of equations, it describes a system that has at least one solution.

Inconsistent

A term used to describe a system of equations that has no solution because the equations represent parallel lines.

Elimination

A method for solving a system of equations by adding or subtracting the equations in order to eliminate one of the variables.