Which of the Following Is an Implicit Assumption of the Dividend

question 7

Multiple Choice

Which of the following is an implicit assumption of the dividend discount model?s estimate of the cost of capital?

• A)The firm can borrow and lend at a risk-free rate.
• B)The firm's earning growth rate will be equal to the dividend growth rate.
• C)The earnings growth forecasts are unbiased.
• D)The firm's earnings and dividends grow at the different constant rate,forever.

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Definitions:

Productive Capacity

The maximum output that an economy can achieve when using its resources fully and efficiently.

Standard of Living

The degree of wealth and material comfort available to a person or community.

Aggregate Expenditures

are the total amount of spending on goods and services in an economy at a given level of income during a specified period.

Recession

A phase of short-term economic downturn characterized by decreased trading and industrial output, generally recognized by a drop in Gross Domestic Product across two consecutive quarters.