If Two Firms Have the Same Current Dividend and the Same

question 86

Multiple Choice

If two firms have the same current dividend and the same expected growth rate,their stocks must sell at the same current price or else the market will not be in equilibrium.

• A) False, because the required return could be different
• B) True, because we are using a dividend valuation model
• C) True if markets are semi-strong form efficient
• D) True if investors are risk-averse

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Definitions:

Merchandise Business

A commercial enterprise that purchases and sells goods, typically in the retail or wholesale markets, to generate profit.

Formal Income Statement

A financial document that provides a detailed report of a company's revenues, expenses, and net income over a specific period.

Worksheet

A paper or digital form used to organize data and calculate figures, often preliminary to the preparation of financial statements.