Using the Constant Growth Dividend Valuation Model and Assuming Dividends

question 93

Multiple Choice

Using the constant growth dividend valuation model and assuming dividends will growth a constant rate forever,the increase in the value of the stock each year should be equal to the

• A) growth rate in dividends, g.
• B) required return on the stock, rcs.
• C) dividend yield plus the capital gains yield.
• D) dividend yield.

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Definitions:

Relevant Range

The scope of operations within which the assumptions regarding the behavior of variable and fixed costs hold true.

Cost Formula

An equation used to calculate the total cost of production that combines both fixed costs and variable costs.

Production Variation

Fluctuations in the quantity of goods produced, often due to changes in demand or production capacity.

Variable Operating Expenses

Operating costs that vary in proportion to the level of business activity or output, such as sales commissions and utility bills.