Which of the following statements is FALSE? O The dividend discount model values

Question

Which of the following statements is FALSE? O The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders. One assumption used to forecast for the firm's future dividends is that the dividends will grow at a constant rate. g, forever Compared to bond coupon payments, there is a lot of uncertainty associated with any forecast of a firm's future dividends. OAccording to the constant dividend growth model, the value of the firm depends on the current dividend level divided by the equity cost of capital plus the growth rate, g

Explanation / Answer

Option D.

Constant dividend growth model does not depend on the current dividend level.

According to constant dividend growth model,

P0 = D1/(R-G)

P0 = Current stock price

D1 - Dividend at t =1

R - Required rate

G - Growth rate

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