Which of the following best describes the H-Model formula?

The H-Model formula is a valuation model that effectively captures the relationship between current dividends and growth rates with a focus on both short-term and long-term growth expectations. Specifically, it is designed to assess companies experiencing a temporary period of high growth that eventually transitions to a stable, lower growth rate.

In the H-Model, the formula combines two growth rates: a higher growth rate for the initial phase and a stable long-term growth rate. This model uses the assumption that the shorter-term high growth will eventually taper off and converge to the lower, sustainable growth rate. By incorporating these two growth phases, the H-Model provides a more nuanced and realistic valuation for firms that are not in a steady state of growth or decline, thus enhancing the accuracy of the valuation.

Given this understanding, the description that aligns best with the H-Model formula is the relationship between current dividends and both growth rates, confirming that option B accurately captures the essence of the H-Model.