Question

Which of the following is a limitation of the dividend-discount ​model? A. It cannot handle negative growth rates. B. It does not consider past earnings and performance. C. It requires that the growth rate always be higher than the required rate of​ return, which is not realistic. D. It requires accurate dividend​ forecasts, which is not possible.

Answer 1

Answer:

B. It does not consider past earnings and performance.

Explanation:

$\frac{divends}{return-growth} = Intrinsic \: Value$

The formula use the expected nextyear dividends,

the expected growth on the dividends

and the cost of capital.

It doesn't include anything related to previous earnings and performarce. Like net income, net loss, increase in equity, increase in assets or any other variance about the company's composition of his capital and income.