Question #103
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 40
Status: Unattempted
Question
What is the difference between a standard two-stage growth model and the H-model?
Answer Choices:
A. In the standard two-stage model, a fixed rate of growth is assumed for each stage, while the H-model assumes a linearly declining rate of growth in one stage
B. The H-model assumes that earnings will dip in the middle of each stage and return to the previous rate by the period's end
C. The H-model assumes a terminal value, while the standard two-stage model does not
Explanation
The H-model provides an estimate of the firm's value based on the assumption that the
rate of growth will change linearly over the initial stage.