The Variable-Growth Dividend Valuation Model

question 52

Multiple Choice

The variable-growth dividend valuation model

• A) develops the value of a stock using the future value of dividends minus a rate of capital gain growth.
• B) is valuable because it accounts for the general growth patterns of most companies.
• C) is invalid if at any point in time the growth rate exceeds the required rate of return.
• D) assumes the rate of dividend growth will vary indefinitely.

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Definitions:

Gain on Sale

The profit realized from the sale of assets when the selling price exceeds the book value.

Noncurrent Assets

Assets not expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer; includes property, plant, and equipment.

Amortization of Discount

The gradual reduction of a bond discount over the life of the bond, effectively increasing the bond's book value to its face value at maturity.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues.