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Basic Question 11 of 12
Which of the following statements regarding the Gordon Growth Model is false?
B. It cannot be applied to valuation of non-dividend-paying companies or companies with erratic growth pattern.
C. It does not define simple and easy-to-use relationships among required rate of return, growth, payout ratio and value.
A. Calculated values are very sensitive to the growth and required return assumptions.
B. It cannot be applied to valuation of non-dividend-paying companies or companies with erratic growth pattern.
C. It does not define simple and easy-to-use relationships among required rate of return, growth, payout ratio and value.
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Learning Outcome Statements
calculate the value of a common stock using the Gordon growth model and explain the model's underlying assumptions;
calculate the value of non-callable fixed-rate perpetual preferred stock;
calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price;
describe strengths and limitations of the Gordon growth model and justify its selection to value a company's common shares;
CFA® 2025 Level II Curriculum, Volume 3, Module 21.