constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Question

Quizplus · Accepted Answer

The constant growth DCF model used to evaluate the prices of common stocks assumes a perpetuity of dividends that grow at a constant rate. This is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities that have a fixed rate of return. Therefore, the statement is true.

Constant Growth DCF Model Used to Evaluate the Prices of Common