Question

If you were analyzing the consumer goods industry, for which kind of company in the industry would the constant growth model work best? a. Mature companies with relatively predictable earnings. b. All companies. c. Young companies with unpredictable earnings.

Answer 1

Answer:

Mature companies with relatively predictable earnings

Explanation:

Constant growth model is under the assumption that a company's dividend will grow at a constant rate indefinitely(forever). This makes more sense and hold is appropriate method of valuation for a mature company that has  relatively predictable earnings. Young companies on the other hand have fluctuating earnings making it appropriate to use non-constant growth model to value its dividends.