Question

Which of the following statements is most correct?

Select one:

a. The constant growth model is often appropriate for companies that never pay dividend.

b. The constant growth model is often appropriate for mature companies with a stable history of growth.

c. Two firms with the same dividend and growth rate must also have the same stock price.

d. The constant growth model cannot be applied to companies that expect zero dividend growth rate.

e. The constant growth model is often appropriate for companies that the dividend growth rate is larger than its required rate of return on stock.

Answer #1

Correct answer is B)

Reason: constant growth model formula is p= D1/(k-g) where D1 is dividend for first year k is cost of equity and g is growth rate. So it is not applicable for firms with zero dividend policy

So it is appropriate for mature companies with a stable growth. As mature firms only pay stable dividends(so this is correct answer)

Firms with similar dividend and growth will not have equal price beacuse expected return may vary

It is also not applicable for companies having more growth than expected return

Which of the following statements is most correct? Select
one:
a. The constant growth model is often appropriate for companies
that the dividend growth rate is larger than its required rate of
return on stock.
b. The constant growth model is often appropriate for companies
that never pay dividend.
c. Two firms with the same dividend and growth rate should have
the same stock price.
d. The constant growth model can be applied to companies that
expect zero dividend growth...

Which of the following statements is incorrect regarding the
constant growth model?
a.Another name for the dividend to be received in one year
divided by the current stock price is the expected dividend
yield.
b.The constant growth model assumes that earnings, dividends and
stock prices are expected to grow at a constant rate.
c.If the dividend growth rate is zero, the constant growth model
becomes a zero-growth valuation model.
d.The constant growth model can still be used if the required...

Which of the following statements is incorrect regarding the
constant growth model?
Group of answer choices
If the dividend growth rate is zero, the constant growth model
becomes a zero-growth valuation model.
The constant growth model can still be used if the required rate
of return is less than the dividend growth rate.
Another name for the dividend to be received in one year divided
by the current stock price is the expected dividend yield.
The constant growth model calculates...

Which of the following is not a problem with the dividend-growth
model:
Select one or more:
a. the discount rate is hard to calculate accurately
b. there are no problems, it is 100% accurate
c. dividend growth rates are hard to predict
d. only works with firms that are paying dividends
e. the market growth rate is a “constant” that doesn’t
change

Choose all correct statements.
1.Dividend growth rate is equivalent to the dividend yield.
2.The total return on a stock is equal to the dividend yield
plus the capital gains yield.
3.The benchmark PE ratio can be used to value the stock of firms
that pay no dividends.
4.Assume the constant dividend growth model. An increase in the
capital gains yield will increase the current value of a stock.

________assumes dividends will remain constant.
Select one:
a. None of the options are correct
b. Gordon growth model
c. Zero growth dividend model
d. Maximum growth model

1. Which of the following statements is correct?
a. For a company that has no growth, dividends stay constant
over time.
b. Common stock is considered to have fixed maturity.
c. If preferred stock dividends are not paid, the lack of
payment is legally viewed as a default.
d. The constant-growth stock has constant amount of dividends
and does not grow over time.
e. All the answers are correct.
2. Dun & Bradstreet Corp has a preferred stock paying a...

Which of the following is false?
A. For a constant dividend growth stock, the stock price is
expected to grow at a rate equal to the dividend growth rate.
B. For the constant dividend growth model, the required return must
be larger than the constant dividend growth rate.
C. As with bonds, the current price of a stock is the future value
of all expected cash flows.
D. Financial managers attempt to maximize the value of the firm by
increasing...

Explain the difference between using the zero-growth dividend
valuation model and the constant-growth dividend valuation model
when finding the intrinsic value of common stock and preferred
stock.
How does adding a growth rate to the valuation process affect
the intrinsic value?

Which of the following statements is most correct?
Operating economies are never a motive for mergers.
Tax considerations often play a part in mergers. If one firm has
excess cash, purchasing another firm exposes the purchasing firm to
additional taxes. Thus, firms with excess cash rarely undertake
mergers.
Since mergers are frequently financed by debt rather than
equity, a lower cost of debt or a greater debt capacity are rarely
relevant considerations when considering a merger.
Managers who purchase other...

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