Question #35
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 15
Status: Incorrect
Correct Answer: B
Your Answer: C
Question
Which of the following models would be most appropriate for a firm that is expected to grow at an initial rate of 10%, declining steadily to 6% over a period of five years, and to remain steady at 6% thereafter?
Answer Choices:
A. A two-stage model
B. The Gordon growth model
C. The H-model
Explanation
The H-model is the best answer, as it avoids an immediate drop to 6% like a two-stage
would. The Gordon growth model would not be appropriate.