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

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Definitions:

Unwittingly

Unwittingly means doing something without being aware of all the facts or without intending to cause a particular result.

Ignorance

The lack of knowledge, understanding, or awareness about something.

Profit Maximization

A company's goal to achieve the highest possible financial gain from its operations, within legal and ethical boundaries.

Criminally Negligent

Behaving in a reckless or careless manner that results in harm to others, without the intent to cause harm.