The equity valuation model that determines the current share price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.
A)zero growth
B)dividend growth
C)capital pricing
D)earnings capitalization
E)differential growth

Question

Quizplus · Accepted Answer

The model described in the question is known as the dividend growth model, which uses dividend payments and their expected growth rate to determine the stock's intrinsic value. The formula for the dividend growth valuation model is D₁ / (r - g), where D₁ is the expected dividend for the next year, r is the required rate of return, and g is the expected growth rate of dividends. The model assumes that the dividend payment will increase at a constant rate indefinitely, and the dividend discount rate is equal to the investor's required rate of return.

The Equity Valuation Model That Determines the Current Share Price