As a means of determining a ﬁrm's cost of equity ﬁnancing for an investment, a weakness in the
dividend growth model is that the model is highly sensitive to the growth rate of the ﬁrm.

Question

Quizplus · Accepted Answer

The dividend growth model relies heavily on the growth rate of the firm, and small changes in the growth rate can have a significant impact on the estimated cost of equity financing. Therefore, this is a weakness of the model.

As a Means of Determining a ﬁRm's Cost of Equity