Question

Which of the following statements is CORRECT? Group of answer choices 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. If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, then the stock’s dividend yield is also 5%. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. The stock valuation model, P0 = D1/(rs - 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. The constant growth model cannot be used for a zero growth stock, wherein the dividend is expected to remain constant over time.

Answer 1

Answer:

The stock valuation model, P0 = D1/(rs - 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.

Explanation:

1) The dividends gros model is more useful for companys with an stable history so the predictions on dividend grow are more based on fact rather than speculations

2) no, the dividend yield will be 7%

$\frac{dividend}{price} \\whre:\\price = \frac{dividend}{r-g}$

we work that and got that dividend yield = r-g

3) it is being discounted at the rate of return for the firm, not the growth rate.

5)if grow is zero then, we can calculate. We cannot calcualte under circumnstances of g > r

4) TRUE if g = -2% we can calcualte a stock price as the future cahs flow from dividends can be calculated.