Question

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

Answer 1

while using the dividend growth model we are not using the market growth rate and we are only using the growth rate of the dividend of the firm so we should not be Accounting in market growth rate because it is not a factor which is to be Undertaken for dividend discounting model.

All the other factors such a discounting rate and dividend growth rate and applicability to only dividend paying stocks are are problems associated with dividend discounting model.

Correct answer will be option (e)