Which of the Following Statements Is True

question 32

Multiple Choice

Which of the following statements is true?

• A) In order for the constant growth dividend model to properly value a firm's common stock, R must be greater than g.
• B) From a practical perspective, the growth rate in the constant growth dividend model must be greater than the sum of the long-term rate of inflation and the long-term real growth rate of the economy.
• C) In order for the constant growth dividend model to properly value a firm's common stock, g must be greater than R.
• D) The constant growth dividend model can be used effectively to value the common shares of a mixed growth stock.

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Definitions:

Cost Of Goods Sold

The direct costs attributable to the production of the goods sold by a company.

Rate Of Return

The gain or loss on an investment over a specified period, expressed as a percentage of the investment's cost.

Investment

The allocation of resources, such as capital or time, in the expectation of generating an income or profit.

Acid Test Ratio

A liquidity metric that measures a company's capability to cover short-term liabilities with assets easily convertible to cash.