The Constant Growth Dividend Valuation Model Can Also Be Used

question 19

Multiple Choice

The constant growth dividend valuation model can also be used to estimate the cost of equity capital as:

• A) D1/[rs- g]
• B) D1/Po- g
• C) D1/Po+ g
• D) Po(rs- g)
• E) (D1/Po)(1+ rs)

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Definitions:

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the cost per unit of output.

Average Variable Cost

Average variable cost is the total variable cost divided by the quantity of output produced, indicating the variable cost of producing each unit of output.

Fixed Cost

Costs that do not change with the level of output or sales, such as rent, salaries, and loan payments.

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.