Question #41
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 17
Status: Correct
Correct Answer: B
Question
Jax, Inc., pays a current dividend of $0.52 and is projected to grow at 12%. If the required rate of return is 11%, what is the current value based on the Gordon growth model?
Answer Choices:
A. $39.47
B. unable to determine value using Gordon model
C. $58.24
Explanation
The Gordon growth model cannot be used if the growth rate exceeds the required rate of
return.