Dividend Growth Model, Capital Asset Pricing Model, Modern Portfolio Theory, Estimation of Untraded Stocks

1. Dividend Growth dumbfoundThe basic self-reliance in the Dividend Growth engender is that the dividend is expected to grow at a constant evaluate. That this growth rate travel out not change for the duration of the evaluated period. As a result, this whitethorn skew the resultant for companies that argon experiencing swift offshoot. The Dividend Growth Model is better suited for those stable companies that command over the model. Those that are growing quickly or that wear out?t pay dividends do not fit the assumption parameters, and indeed this model cannot be used. In this model, a union may not exceed the market growth rate. In addition, since the dividend growth rate is expected to remain constant indefinitely, the early(a) measures of cognitive process within the company are similarly expected to get the same growth rate. If in the sure state, the dividend rate is greater that earnings, in time this model will show a dividend payout greater than the earnings of the company. Conversely, if earnings are growing fast-breaking than dividends, the payout rate will converge towards zero. In summary, the Dividend Growth Model works well for those companies growing at a rate equal to or lower than that of the providence and have an conventional and stable dividend payout.

In order to reckon the cost of integrity using the Dividend Growth Model, we simply line up the model?s par for estimating the price of a stock, devoted as much(prenominal):P = D1 / (r ? g)Where P = the price of the stockD1 = the expected Dividend in ane yearr = the required rate of returng = the expected Growth ConstantBy settlement the equation for k we get t he following:P(r ? g) = D1r ? g = D1 / Pr = ! (D1 / P) + gTherefore in order to estimate the cost of equity... If you want to get a full essay, order it on our website: OrderEssay.net

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