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:

Price-leadership Model

A strategy where the dominant firm in a market sets the price of goods or services, and other firms in the industry follow suit.

Demand Elasticity

Demand Elasticity measures how sensitive the quantity demanded of a good or service is to a change in its price, income levels, or other factors.

Learning Organisations

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