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4. Expected returns, dividends, and growth Aa Aa E The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: D1 (r5 ' g) 'u: a ll Which of the following statements is true? 0 Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth. 0 Increasing dividends will always decrease the stack price, because the firm is depleting internal funding resources. 0 Increasing dividends will always increase the stack price. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $0.45 at the end of the year. Its dividend is expectEd to grow at a constant rate of 9.00% per year. If Walter's stock currently trades for $30.00 per share, what is the expectEd rate of return? 0 9.01% O 10.50% 0 5.10% O 9.15% Which of the following statements will always hold true? 0 It will never be appropriate for a rapidly growing startup company that pays no dividends at presentbut is expected to pay dividends at some point in the futureto use the constant growth valuation formula. 0 The constant growth valuation formula is not appropriate to use unless the company's growth rate is expected to remain constant in the future. 0 The constant growth valuation formula is not appropriate to use for zero growth stocks