Estimate the value of common stock in a future period

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Problem 1: When would it be important to AVOID using the Gordon growth model (also called the dividend discount model) to estimate the value of common stock in a future period?

a. The required return on the stock is 5 percent and the expected dividend growth rate is 6 percent.
b. There is an expectation that the dividend growth rate will continue indefinitely.
c. The only reliable information available is the current dividend paid, the expected dividend growth rate, and the required return on common equity.
d. An investor believes the future dividend growth will 2 percent even though the capital market consensus is for 4 percent.

Reference no: EM132715910

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