The limitations of the dividend discount model are most pronounced for a firm that
A) has a high beta.
B) has high expected future earnings.
C) distributes most of its earnings as dividends.
D) retains all of its earnings.
E) none of the above

Question

Quizplus · Accepted Answer

The dividend discount model assumes that a company pays out dividends and does not retain all earnings for future growth. Therefore, the model is not suitable for a firm that retains all of its earnings.

The Limitations of the Dividend Discount Model Are Most Pronounced