Which of the following is a situation in which you would want to use the constant-growth model approach for estimating the component cost of equity?
A) when the firm has a low beta
B) when the firm has multiple divisions
C) when the firm's stock is expected to experience constant dividend growth
D) when the firm has a high level of financial leverage

Question

Quizplus · Accepted Answer

The constant-growth model, also known as the Gordon Growth Model, is most appropriate for estimating the cost of equity for firms expected to have a constant dividend growth rate over time. This model is not directly concerned with the firm's beta, the number of its divisions, or its level of financial leverage.

Which of the Following Is a Situation in Which You