It is possible to ignore cash dividends that occur far into the future when using a dividend discount model because those dividends:
A) will most likely be paid to a different investor.
B) will most likely not be paid.
C) have an insignificant present value.
D)have a minimal, if any, potential rate of growth.

Question

Quizplus · Accepted Answer

When using a dividend discount model, it is important to consider the present value of future cash dividends. However, dividends that occur far into the future may have a negligible present value, especially when discounted at a higher rate. Therefore, it is reasonable to ignore those dividends as they may not significantly affect the current stock price. Option C is the correct answer as it implies that these dividends have an insignificant present value.

It Is Possible to Ignore Cash Dividends That Occur Far