Using the Constant Growth Model, an Increase in the Required

question 39

Multiple Choice

Using the constant growth model, an increase in the required rate of return from 14 to 18% combined with an increase in the growth rate from 8 to 12% would cause the price to

• A) Fall more than 4%
• B) Fall less than 4%.
• C) Rise more than 4%
• D) Rise less than 4%.
• E) Remain constant.

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Definitions:

Franchisor

The original business or company that grants the license to third-party operators to conduct business under its name and system.

Hypothetical Basis

A theoretical foundation or scenario used for analysis or argument, often constructed to explore possibilities or outcomes.

Disclosure

Disclosure is the act of making new or vital information known, particularly facts that could influence decisions in a financial, legal, or personal context.

Franchise

A licensing arrangement where a franchisor allows a franchisee to use its business model, brand, and rights to sell its products or services.