Which of the following is a limitation of the dividend-discount model?
A) It cannot handle negative growth rates.
B) It requires accurate dividend forecasts, which is not possible.
C) It requires that the growth rate always be higher than the required rate of return, which is not realistic.
D) It does not consider past earnings and performance.

Question

Quizplus · Accepted Answer

The dividend-discount model relies on accurate dividend forecasts, which are difficult to predict and subject to change. This limits the reliability of the model as an accurate valuation tool. The other options (A, C, D) are potential limitations but not as significant as the requirement for accurate dividend forecasts.

Which of the Following Is a Limitation of the Dividend-Discount