Posted by Jason on .
The cost of capital for common stock is ke=(d1/Po)+g. What are the assumptions of the model?
A. growth (g) is constant to infinity
B. The price earnings ration stay the same
C. The firm must pay a dividend to use this model
D All of the above are assumptions of the model
I rean in the tex book ... for a constant growth stock, the following conditions must hold:
1. the expected dividend yield is constant
2. the dividend is expected to grow forever at a constant rate.
that means that D is the correct answer, because the company must pay a dividend to make all of these things happen.
Is that correct???