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.

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- Spring '14
- Probability theory, English-language films, D1, Risk premium