You are considering investing in a ﬁrm and wish to place a value on the common stock. The
dividend on the ﬁrm's stock has not changed in the last ﬁve years. Absent any information
suggesting future changes in the dividend rate, the most appropriate stock valuation model would
be the ___________ model.

Question

Quizplus · Accepted Answer

Since the dividend on the firm's stock has not changed in the last five years and there is no information indicating future changes in the dividend rate, the dividend growth rate can be assumed to be zero. Therefore, the most appropriate stock valuation model would be the zero growth model, which assumes a constant dividend payment over time.

You Are Considering Investing in a ﬁRm and Wish to Place