The constant dividend growth model cannot be used when dividends are
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One of the circumstances in which the Gordon growth valuation model for estimating the value of a share of stock should be used is ________. a. declining dividends b. an erratic dividend stream c. the lack of data on dividend payments d. a steady growth rate in dividends
Khushbu R.
Suppose Beth just bought stock in CleanAir Co., a renewable energy startup, and that Beth estimates there will be a dividend of $7 per share, paid annually, forever. If the discount rate on the stock is 9 percent, then using the discount dividend model, the value of the stock is: $67.67 per share $71.56 per share $77.78 per share $84.78 per share Now suppose Beth estimates that there will be a dividend of $7 per share paid out next year, and that the dividend is expected to grow at a constant rate of 2 percent per year. If the required rate of return on the stock is 9 percent, then using the discount dividend model, the value of the stock is: $89.00 per share $94.00 per share $100.00 per share $106.00 per share Which of the following are limitations to the dividend discount model? Check all that apply. It can result in inaccurate valuations when the dividend growth rate is incorrectly estimated. It can result in inaccurate valuations when the required rate of return by investors is incorrectly estimated. It assumes that uncertainty cannot be accounted for because it doesn’t allow expectations about investors’ required rate of return to change. It can result in inaccurate valuations when the firm being evaluated retains a small percentage of its earnings, distributing most of them as dividends.
Mauya M.
Rachel G.
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