Which of the Following Statements Is CORRECT

question 18

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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%,then the stock's dividend yield is also 5%.
• C) 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.
• D) The price of a stock is the present value of all expected future dividends,discounted at the dividend growth rate.
• E) The constant growth model cannot be used for a zero growth stock,wherein the dividend is expected to remain constant over time.

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