Which of the following statements is CORRECT? A)The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years. B)If a stock has a required rate of return r_s = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. C)The stock valuation model, P₀ = D₁/(r_s − g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. D)The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. E)The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

Question

Quizplus · Accepted Answer

The constant growth model can be used even if dividends are expected to decline at a constant rate, as it accounts for negative growth rates.

Which of the Following Statements Is CORRECT