Circumstances in which the constant growth valuation modelthe Gordon modelfor estimating the value of a share of stock should be used include
A) declining dividends.
B) an erratic dividend stream.
C) the lack of dividends.
D) a steady growth rate in dividends.

Question

Quizplus · Accepted Answer

The Gordon model is used to estimate the value of a share of stock when there is a steady growth rate in dividends. This model assumes that the dividend payments will continue to grow at a constant rate indefinitely, which is appropriate for companies with a stable history of dividend growth. It is not suitable for companies with declining, erratic, or zero dividends.

Circumstances in Which the Constant Growth Valuation Modelthe Gordon Modelfor