The Constant Growth Valuation Model Approach to Calculating the Cost

question 57

Multiple Choice

The constant growth valuation model approach to calculating the cost of equity assumes that ____.

• A) earnings and dividends grow at a constant rate, but stock price growth is indeterminate
• B) the growth rate is greater than or equal to k_e
• C) dividends are constant
• D) earnings, dividends, and stock price will grow at a constant rate

---

Definitions:

Net Operating Income

The profit generated from the normal operational activities of a business, excluding other income and expenses such as interest and taxes.

Variable Costing

An accounting technique that calculates the cost of a product by considering only costs that fluctuate with the level of production, excluding fixed costs.

Absorption Costing

A costing method that includes all manufacturing costs - both variable and fixed - in the cost of a product.

Unit Product Cost

The total cost associated with manufacturing a single unit of a product, including direct materials, direct labor, and overhead.