The Dividend Growth Model

question 295

Multiple Choice

The dividend growth model:

• A) Can be used to estimate the cost of equity for any corporation.
• B) Is applicable only to firms that pay a constant dividend.
• C) Is highly dependent upon the estimated rate of growth.
• D) Is considered quite complex.
• E) Considers the risk of the firm.

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Definitions:

Implicit Cost

The opportunity cost equal to what a firm must give up in order to use resources it owns, without paying rent or borrowing costs.

Free Entry

A market condition where new participants can enter the industry freely without facing prohibitive barriers to entry.

Zero Profits

A situation in which a company's revenues exactly equal its expenses, resulting in no net income or loss.

Price

The monetary value estimated, obligatory, or presented in compensation for an object.