The statement is false.
When a company is experiencing non-constant growth, the traditional Gordon Growth Model, which assumes a constant growth rate, is not appropriate for calculating the current stock price based on expected dividends. However, there are other methods and models that can be used to estimate stock price in such cases; one such method is the multistage dividend discount model.
The multistage dividend discount model recognizes that companies may go through different phases of dividend growth. In this model, the calculation is divided into different stages, each with its own growth rate. Here is the general approach to calculate the stock price using a multistage dividend discount model:
1. **Estimate Dividends for the High Growth Phase**: Determine the amount of the dividends expected during the initial period of non-constant or high growth. Calculate the present value of each of these dividends.
2. **Estimate Dividends for the Stable Growth Phase**: Identify when the company is expected to enter into a stable growth phase. Estimate the dividends during this phase and, typically, use the Gordon Growth Model to calculate the present value of all the future dividends expected from the start of the stable growth phase into perpetuity.
3. **Calculate the Present Value of All Estimated Dividends**: Discount all the dividends estimated in steps 1 and 2 back to their present values using the appropriate discount rate.
4. **Sum the Present Values**: The value of the stock is the sum of the present values of the dividends calculated for each phase.
By using this methodology, a more accurate representation of stock price can be calculated even when a firm is experiencing non-constant growth. Hence, it is not correct to say that a stock price cannot be calculated in such scenarios; instead, the valuation needs a more detailed analysis, considering the various growth phases the firm is expected to go through.
The answer to the statement is B, False.
