Which of the following statements is FALSE?AWe should use the general dividend discount model to value the stock of a firm with rapid or changing growth.BPreference shares usually pay a fixed dividend. Valuing the preference share with the dividend discount model is essentially applying the perpetuity formula.CThe dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.DThe constant dividend growth model assumes that firm's future dividends grow at a constant rate, g, forever.SUBMIT
Question
Which of the following statements is FALSE?AWe should use the general dividend discount model to value the stock of a firm with rapid or changing growth.BPreference shares usually pay a fixed dividend. Valuing the preference share with the dividend discount model is essentially applying the perpetuity formula.CThe dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.DThe constant dividend growth model assumes that firm's future dividends grow at a constant rate, g, forever.SUBMIT
Solution
The FALSE statement is A: "We should use the general dividend discount model to value the stock of a firm with rapid or changing growth."
The general dividend discount model is not typically used for firms with rapid or changing growth. Instead, it is more appropriate for firms with stable, predictable growth rates. For firms with rapid or changing growth, a multi-stage dividend discount model or other valuation methods might be more appropriate.
Similar Questions
Which of the following statements is FALSE? O a. The simplest forecast for the firm's future dividends states that they will growat a constant rate; i.e., forever. O b. We must discount the cash flows from stock based on the equity cost ofcapital for the stock. O c. The firm might pay out cash to its shareholders in the form of a dividend.O d. The dividend yield is the expected annual dividend of a stock, divided by itsexpected future sale price.
Which of the following best describes the constant-growth dividend discount model? Group of answer choices It is the formula for the present value of an ordinary annuity. It is the formula for the present value of a growing perpetuity. It is the formula for the future value of a perpetuity. It is the formula for the future value of a growing annuity. It is the formula for the future value of an ordinary annuity.
According to the Dividend Discount Model (DDM) which of the following would NOT increase the share price of a stock?Group of answer choicesAn increase in the discount rateA decrease in the discount rateAn increase in the growth rateAn increase in next period's dividend
Which of the following statements is FALSE?AEstimating dividends, especially for the distant future, is difficult.BA firm can only pay out its earnings to investors or reinvest their earnings.CSuccessful young firms often have high initial earnings growth rates. As firms mature, their growth tends to slow down to a constant and stable rate.DAccording to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the growth rate.SUBMIT
Activity 2: Q4) Which of the following statements is FALSE? A Estimating dividends, especially for the distant future, is difficult. B A firm can only pay out its earnings to investors or reinvest their earnings. C Successful young firms often have high initial earnings growth rates. As firms mature, their growth tends to slow down to a constant and stable rate. D According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the growth rate. SUBMIT
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