the growth rate must be less than the cost of equity the cost of equity must not include a beta the growth rate must be constant the growth rate must be greater than the cost of equity Question 8 The perpetual growth rate assumption in the model is __________. not reasonable appropriate reasonable realistic Question 9 If a firm does not pay a dividend, the constant growth model can still be used as long as __________. this model cannot be used without a dividend the average market dividend is used the average industry dividend is used you use a constant assumption for the dividend Question 10 Given a growth rate of 5%, a current dividend of $1.50, and an expected return of 12%, what is the numerator of the constant growth model? $1.50 $1.58 $1.68 $1.76 Question 11 The constant growth model will likely be most appropriate for __________. mature firms growth firms value firms all firms equally Question 12 Dividends are beneficial, except for which of the following reasons?
They ensure that debt or equity remains constant. They remove excess money that may not be used efficiently. They convey information. They provide a steady payment. Question 13 To solve for the cost of capital, the constant growth model can be manipulated into which of the following? = D 1 / P 0 + g = D 1 / g + P 0 = D 1 / P 0 + g / D 1 No manipulation exists to solve for the cost of capital.
- Spring '14
- Probability theory, English-language films, D1, Risk premium