Question #64
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 25
Status: Correct
Correct Answer: A
Question
Which of the following models would be most appropriate for a firm that is expected to grow at 8% for the next three years, and at 6% thereafter?
Answer Choices:
A. The Gordon growth model
B. The H-model
C. A two-stage model
Explanation
A firm that is expected to experience two growth stages with a fixed rate of growth for
each stage should be evaluated with a two-stage dividend discount model.