How is it possible to ignore cash dividends that occur far into the future when using a dividend discount model? Those dividends:
A) will be paid to a different investor.
B) will not be paid by the firm.
C) have an insignificant present value.
D) ignore the tax consequences of future dividends.

Question

Quizplus · Accepted Answer

The dividend discount model only considers the present value of future dividends. Cash dividends that occur far into the future have an insignificant present value and can be ignored without significantly affecting the accuracy of the model. This is because the time value of money reduces the value of future cash flows, making their present value relatively insignificant. Therefore, option C is the best choice.

How Is It Possible to Ignore Cash Dividends That Occur