Question #1
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 1
Status: Incorrect
Correct Answer: B
Your Answer: A
Question
If the growth rate in dividends is too high, it should be replaced with:
Answer Choices:
A. the growth rate in earnings per share
B. a growth rate closer to that of gross domestic product (GDP)
C. the average growth rate of the industry
Explanation
A firm cannot, in the long term, grow at a rate significantly greater than the growth rate of
the economy in which it operates. If the growth rate in dividends is too high, then it is best
replaced by a growth rate closer to that of GDP.