A problem with the dividend growth model is:
A)that it is difficult to estimate the value of any tax credits.
B)that it is difficult to obtain market prices for shares listed on the stock exchange.
C)that it is extremely sensitive to estimates of the future growth rate in dividends.
D)none of the given options.

Question

Quizplus · Accepted Answer

The dividend growth model relies heavily on estimating the future growth rate in dividends. This growth rate is difficult to predict with accuracy and can greatly influence the estimated value of a stock. Small changes in the growth rate can lead to significant differences in the estimated value of the stock. Therefore, the model is extremely sensitive to these estimates.

A Problem with the Dividend Growth Model Is