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Q2B

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Essentials Of Investments
Found in: Page 436
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?

To value the companies with temporarily high growth rates.

See the step by step solution

Step by Step Solution

Step 1: Definition of multistage dividend discount model

It is a model for equity valuation that applies changing growth rates to different time periods.

Step 2: Explanation on choice of multi-stage dividend discount model

It is important to use this model while valuing companies with temporarily high growth rates. Since such companies are in their early life cycle, hence they tend to re-invest than pay dividends or pay low dividends.

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