The Perpetual Growth Model for Valuing Stocks Is Not Useful

question 113

Multiple Choice

The perpetual growth model for valuing stocks is not useful when:

• A) the required return is greater than the growth rate.
• B) the dividend yield is greater than the capital gains yield.
• C) the company is a well-established company.
• D) the capital gains yield is greater than the dividend yield.
• E) the growth rate is greater than the required return.

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Definitions:

Total Variable Cost

The total of all costs that vary with the level of production, such as materials and labor costs.

Total Fixed Cost

The sum of all costs that do not change with the level of production or output in the short term, such as rent or salaries.

Purely Competitive Market

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit, leading to price taking behavior.

Marginal Cost

Marginal cost is the cost incurred by producing one additional unit of a product or service.