The Constant Growth Rate Model of the DDM Implies That

question 43

Multiple Choice

The constant growth rate model of the DDM implies that:

• A)earnings are not relevant to stock prices.
• B)the payout ratio remains fixed.
• C)the stock price grows at the same rate as dividends.
• D)the growth rate in dividends equates to zero (i.e.,dividends remain a "constant" dollar amount over time).

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Definitions:

Net Income

The company's remaining earnings once all costs, taxes, and expenses are deducted from its total revenues.

Direct Method

A way of preparing the cash flow statement where actual cash receipts and payments are reported, rather than adjusting net income.

Net Cash Flow

The difference between a company's cash inflows and outflows in a given period.

Operating Activities

Activities that relate directly to the primary revenue-producing operations of an organization, such as sales and service delivery.