A company might choose to use the CAPM instead of the dividend growth model if:
A) they plan major changes in the company's capital structure
B) they pay dividends that grow at a changing rate.
C) they plan to issue preferred shares.
D) they believe that diversifiable risk is the relevant risk.

Question

Quizplus · Accepted Answer

The CAPM (Capital Asset Pricing Model) is preferred over the dividend growth model when dividends grow at a changing rate because the dividend growth model assumes constant growth in dividends, which is not suitable for companies with variable dividend growth rates.

A Company Might Choose to Use the CAPM Instead of the Dividend