Homework Help: finance (assumptions)

Posted by Jason on Saturday, July 26, 2008 at 4:36am.

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 stays the same
C. the firm must pay a dividend to use this model
D. all of the above are assumptions of the model

The expected rate of return on a growth stock has two constants.
1. the expected divided yield and
2. the growth rate

so A and B are correct and A and B cannot be possible without C, so the answer is D ......Is this correct???

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