Question #33
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 15
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
The H model will NOT be very useful when:
Answer Choices:
A. a firm is growing rapidly
B. a firm has low or no dividends currently
C. a firm has a constant payout policy
Explanation
The H model is useful for firms that are growing rapidly but the growth is expected to
decline gradually over time as the firm gets larger and faces increased competition. The
assumption of constant payout ratio makes the model inappropriate for firms that have
low or no dividend currently.