Which of the following is an advantage of the dividend growth approach over the SML in estimating the required return on equity?
A)The dividend growth model uses market information but the SML does not.
B)Dividend growth is known,whereas estimating beta for the SML is an art form.
C)It is easy to fit flotation costs into the dividend growth model but not the SML.
D)All are advantages of the dividend growth model for estimating the required return on equity.

Question

Quizplus · Accepted Answer

The dividend growth model can easily incorporate flotation costs by adjusting the dividend or growth rate, whereas the SML does not directly account for these costs.

Which of the Following Is an Advantage of the Dividend