Question

________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

Answer 1

A zero growth dividend model assumes that the company will pay the same dividend over the life and so growth rate in the dividends will be zero. This means that dividends will remain constant forever.

So, option c is correct.

Gordon growth model assumes that the company's dividend will grow at a constant rate forever. So according to it, when growth rate is greater than zero, dividend will increase and will not remain constant. So, option b is not correct.

Under maximum growth rate model, firm assumes that its profit will continue to increase at a constant maximum rate called sustainable growth rate. So in this model also, dividend will increase. Hence option d is also not a correct answer.