Which of the Following Statements Is CORRECT

question 86

Multiple Choice

Which of the following statements is CORRECT?

• A) If a stock has a required rate of return r_s = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
• B) The stock valuation model, P₀ = D₁/(r_s − g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
• C) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
• D) The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.
• E) The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

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Definitions:

Monopolist Profit

The profit earned by a monopolist, which arises from controlling the market supply of a good or service and setting prices above marginal costs.

Maximize Profits

The process or strategy of adjusting production or operations to generate the highest possible financial gain.

Task Performance

The execution and completion of specific tasks or duties as part of one's role or job responsibilities.

Teamwork

The collaborative effort of a group to achieve common goals or complete tasks in the most effective and efficient way.