Which of the Following Is a Disadvantage of the Dividend

question 155

Multiple Choice

Which of the following is a disadvantage of the dividend growth model when estimating the cost of equity?

• A) It applies only to firms whose dividend growth rate fluctuates widely.
• B) It only applies to companies which are not currently paying dividends.
• C) It explicitly considers risk.
• D) The estimated cost of equity is highly sensitive to the estimated growth rate.
• E) It does not use discounted cash flow techniques.

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Definitions:

Capital Accounts

Accounts that represent the ownership interest of investors in a company or partnership's total capital.

Capital Balances

Refers to the amounts recorded in the equity section of a company's balance sheet, representing the funds contributed by owners plus retained earnings.

Income Ratio

A financial metric used to evaluate a company's profitability by comparing its income to another metric, such as sales or assets, to assess efficiency and performance.

Capital Balance

Capital balance represents the amount of money that stakeholders have invested in a company. This can also refer to the amount of equity a company has.