Common stock can be valued using the perpetuity valuation formula if the:
A) discount rate is expected to remain constant.
B) dividends are not expected to grow.
C) growth rate in dividends is not constant.
D) investor does not intend to sell the stock.

Question

Quizplus · Accepted Answer

The perpetuity valuation formula assumes that the cash flows (in this case, dividends) are constant and do not grow. Therefore, common stock can only be valued using this formula if the dividends are not expected to grow.

Common Stock Can Be Valued Using the Perpetuity Valuation Formula