Nogrowth Corporation expects their dividend to stay at $0.50 per share each year into the foreseeable future.Therefore

Question

Quizplus · Accepted Answer

The dividend valuation model (also known as the dividend discount model) can still be used even if the growth rate is zero. In this case, the value of the stock is simply the dividend per share divided by the investor's required rate of return. Therefore, the value of Nogrowth Corporation's stock can be estimated as $0.50 divided by the investor's required rate of return. Choice A is incorrect because the stock's value is not simply $0.50 times the number of years an investor plans to keep it. Choice C is incorrect because, as stated above, the dividend valuation model can still be used even if the growth rate is zero. Choice D is incorrect because a positive stock value does not depend on a negative required return.

Nogrowth Corporation Expects Their Dividend to Stay at $0