Question

2. the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years. 3 points a. true b. false

Answer 1

The constant growth model is not typically appropriate for evaluating start-up companies due to unpredictable growth patterns, making it false for that context. It is better suited for established companies with stable growth rates.

Step-by-step explanation:

The constant growth model (also known as the dividend discount model for stable growth) is false when it comes to evaluating start-up companies that have no stable history of growth. Start-ups often experience periods of rapid and unpredictable growth before they stabilize.

In relation to the growth models, factors such as the availability of resources and the necessity for a business to measure its own growth potential are important considerations. The constant growth model is more appropriate for evaluating established companies with a predictable growth rate. As studies of the U.S. economy suggest, it is critical to consider various economic factors over different time horizons when accounting for growth.