The constant dividend growth model is:
A)generally used in practice because most shares have a constant growth rate.
B)generally used in practice because the historical growth rate of most shares is constant.
C)generally not used in practice because most shares grow at a non constant rate.
D)generally not used in practice because the constant growth rate is usually higher than the required rate of return.
E)based on the assumption the FTSE 100 represents a good estimate of the market index.

Question

Quizplus · Accepted Answer

The constant dividend growth model is generally not used in practice because most shares grow at a non-constant rate. In reality, companies' dividend growth rates fluctuate based on factors such as the business cycle, industry trends, and internal company decisions. Therefore, it is more common to use other valuation models, such as the discounted cash flow method or the price-earnings ratio.

The Constant Dividend Growth Model Is