For which one of the following situations will the dividend-growth models work especially well?
A)mature firm with a policy of increasing its earnings and dividends at an average rate of 5% per year
B)a company with highly variable earnings and a policy of maintaining a constant 50% payout ratio
C)a company that intends to pay out all of its earnings as dividends
D)a company that is widely viewed as an attractive takeover target

Question

Quizplus · Accepted Answer

The dividend-growth model works best for a mature firm with a consistent policy of increasing its dividend at a stable rate, as it allows for accurate predictions of future dividend payments. Option B has highly variable earnings, which would make it difficult to predict future dividend payments. Option C does not leave room for reinvesting earnings into the company, which could limit growth potential. Option D is unrelated to dividend payments and therefore not relevant to the question.

For Which One of the Following Situations Will the Dividend-Growth