The Constant Growth Formula for Stock Valuation Does Not Work

question 44

True/False

The constant growth formula for stock valuation does not work for a firm with a negative growth rate (i.e., a declining growth rate)in its dividend.

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Definitions:

Explicit Costs

Direct, out-of-pocket expenses incurred in the operation of a business or investment.

Cash Expenditures

Funds spent by a company or individual in cash form for operating activities, investments, and financing.

Explicit Costs

Direct, out-of-pocket payments made by firms for the use of inputs and resources in the production process.

Implicit Costs

Costs that represent the opportunity cost of using resources owned by the firm for its own production instead of earning income elsewhere.