GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The firm has perpetual life
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In the firm r and K remain unchanged
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The firm only uses retained earnings forfinancing its investment, it is all equity firm
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All of the above
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Detailed explanation-1: -The Gordon growth model formula is based on the mathematical properties of an infinite series of numbers growing at a constant rate. The three key inputs in the model are dividends per share (DPS), the growth rate in dividends per share, and the required rate of return (ROR).
Detailed explanation-2: -According to Gordon’s Model, the dividend decision of a firm affects its value and the market value of the share is equal to the present value of its expected future dividends.
Detailed explanation-3: -However, they are under no obligation to repay shareholders using dividends. Stable, constant, and residual are the three types of dividend policy. Even though investors know companies are not required to pay dividends, many consider it a bellwether of that specific company’s financial health.
Detailed explanation-4: -What is the Gordon growth model? The Gordon growth model (GGM) is a financial valuation technique for computing a stock’s intrinsic value. The model leverages the current market price and current dividend payout to calculate the expected dividend growth rate that justifies the price.