Why Would We Want to Assume a Constant Growth to Dividends

question 73

Multiple Choice

Why would we want to assume a constant growth to dividends if we seldom see a firm with this type of pattern?

• A)The answer is that we really want to estimate a series of future dividends and can only do this if we have a growth rate.
• B)The answer is that we do not need to estimate future capital gains and can only do this if we have a growth rate.
• C)The answer is that we really want to estimate a series of past dividends and can only do this if we have a growth rate.
• D)The answer is that we really want to estimate the past capital gains and can only do this if we have a growth rate.

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Definitions:

AFC

Stands for Average Fixed Cost, which is the fixed costs divided by the quantity of output produced, illustrating how fixed costs spread over units decrease as quantity increases.

MR

An abbreviation for Marginal Revenue, which refers to the additional revenue earned by selling one more unit of a good or service.

MC

Stands for Marginal Cost, which is the increase in total cost that arises from producing one additional unit of a good or service.

Product Differentiation

A marketing strategy that involves distinguishing a product or service from others, to make it more attractive to a particular target market.