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21 October, 08:15

The dividend growth model: Multiple Choice can only be used if historical dividend information is available. is based solely on historical dividend information. applies only when a company is currently paying dividends. is only as reliable as the estimated rate of growth. considers the risk that future dividends may vary from their estimated values.

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  1. 21 October, 12:15
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    Answer: Is only as reliable as the estimated rate of growth.

    Explanation:

    The Dividend Growth Model depends a lot of the growth rate to determine the price of equity.

    The formula goes as follows,

    P = D (1 + g) / (k - g)

    P is the stock price

    D is the current dividend

    k is the required rate of return

    g is the growth rate.

    Notice how the growth rate is very influential in this equation and so if it is wrong, the model fails in predicting the price of the stock.
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