1. The Constant-Growth form of the dividend discount model (DDM) is a simplified DCF stock approach to equity valuation. It states that the stock price should equal the present value of all expected future dividends under the assumption that a firm _____________.
A. has a 5-year life
B. has an infinite life
C. will vary its dividend growth rate over its life
D. has managers who own shares in the firm
2. One way for managers to make their companies more valuable for investors is to create a sustainable increase the in the firm’s __________.
A. sales revenue
B. free cash flow
C. advertising program
D. weighted average cost of capital
3. The Constant-Growth DDM is valid only when expected dividend growth, g, is less than the required rate of return, R. If dividends are expected to grow forever (to infinity) at a rate faster than R, the value of the stock would be __________.
A. negative
B. zero
C. a very large finite number
D. infinite