Which of the Following Statements Is CORRECT

question 63

Multiple Choice

Which of the following statements is CORRECT?

• A) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.
• B) If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• C) The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
• D) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
• E) The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

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Definitions:

Minimum Standards

Regulations or guidelines that establish the lowest acceptable limits or requirements for a specific action, performance, product or outcome.

Stakeholders

Individuals or groups that have an interest, concern, or stake in a project, company, or decision, affecting or being affected by the outcome.

Employees

Individuals hired by a business or organization to perform work in exchange for compensation.

Social Responsibility

The idea that entities, whether individuals or organizations, are obligated to act for the benefit of society at large.