Foundations of Financial Management Study Set 5
Quiz 10: Valuation and Rates of Return
The Constant Growth Valuation Formula Is Ps1u1b1os1u1b0 = Ds1u1b11s1u1b0/g -
The constant growth valuation formula is P
/g - K
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To use a dividend valuation model, a firm must have a constant growth rate and the discount rate must not exceed the growth rate.
The drawback of the future share value procedure is that it does not consider dividend income.
Future share value is equal to P
- g, assuming constant growth in dividends.
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