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:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders, based on a chosen activity base.

Variable Component

A portion of a cost or expense that varies directly with the level of activity or production volume.

Fixed Component

The portion of total costs that remains constant regardless of the level of activity or output.

Variable Overhead Rate

This refers to the rate at which indirect, variable costs accumulate over a given period, often linked to production or activity levels.