Which of the following statements concerning the constant-growth dividend valuation model is (are)correct?
I.One simple method of estimating the dividend growth rate is to analyze the historical pattern of dividends.
II.The expected total return equals the return from capital gains plus the return from dividends paid.
III.The model is applicable to growth firms with initially high growth rates.
IV.The intrinsic value calculated using this method can change from one investor to another if their risk-return payoffs differ.
A)I and IV only
B)II and III only
C)I, II and IV only
D)I, II and III only

Question

Quizplus · Accepted Answer

Statement I is correct as historical dividend patterns can be used to estimate growth rates. Statement II is correct because the total return is the sum of capital gains and dividend returns. Statement IV is correct because intrinsic value can vary based on individual risk-return preferences. Statement III is incorrect as the model is not suitable for firms with high initial growth rates.

Which of the Following Statements Concerning the Constant-Growth Dividend Valuation