Estimating a firm's component cost of common equity by means of the dividend growth or Gordon model requires a forecast of the market's expectations about the long-term growth rate in dividends.

Question

Quizplus · Accepted Answer

The dividend growth model, also known as the Gordon model, is a method used for estimating the cost of common equity for a firm. This model requires an assumption or forecast about the expected long-term growth rate of dividends, as it is used to determine the present value of an infinite stream of future dividends. Therefore, statement A is true.

Estimating a Firm's Component Cost of Common Equity by Means