Which one of the following statements is correct related to the dividend growth model approach to computing the cost of equity?

Question

Quizplus · Accepted Answer

The annual dividend used in the computation must be for Year 1 if you are Time 0's stock price to compute the return. This is because the dividend growth model assumes that dividends will grow at a constant rate, and therefore the dividend in Year 1 is the starting point for this growth. The rate of growth (not just for dividends but for earnings, sales, etc.) does not necessarily need to exceed the required rate of return. The rate of return does not need to be adjusted for taxes. The cost of equity is not equal to the return on the stock plus the risk-free rate or the return on the stock multiplied by the stock's beta.

Which One of the Following Statements Is Correct Related to the Dividend