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An issue of common stock has just paid a dividend of 3.75 its growth rate is 8 percent what is its price if the market return is 16 percent?
Wiki User
∙ 14y ago
$50.63
Wiki User
∙ 14y ago
Anonymous
50.63
Anonymous
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What are the drawbacks for using Gordon growth model in dividend pricing?
Although the model's simplicity can be regarded as one of its major strengths, in another sense this is its major drawback, as the purely quantitative model takes no account of qualitative factors such as industry trends or management strategy. For example, even in a highly cash-generative company, near-future dividend payouts could be capped by management's strategy of retaining cash to fund a likely future investment. The simplicity of the model affords no flexibility to take into account projected changes in the rate of future dividend growth. The calculation relies on the assumption that future dividends will grow at a constant rate in perpetuity, taking no account of the possibility that rapid near-term growth could be offset by slower growth further into the future. This limitation makes the Gordon growth model less suitable for use in rapidly growing industries with less predictable dividend patterns, such as software or mobile telecommunications. Its use is typically more appropriate in relatively mature industries or stock-market indices where companies demonstrate more stable and predictable dividend growth patterns.
What is present value of 700000 in five years if current market rate is 3 percent?
425000
What is the probability of insuring an additional five percent of a population when that insurance company already has a thirteen percent market share acquired over a period of seventy five years?
tu hola
What are the assumptions of MM approach?
The MM approach to irrelevance of dividend is based on the following assumptions:· The capital markets are perfect and the investors behave rationally.· All information is freely available to all the investors.· There is no transaction cost.· Securities are divisible and can be split into any fraction. No investor can affect the market price.· There are no taxes and no flotation cost.· The firm has a defined investment policy and the future profits are known with certainty. The implication is that the investment decisions are unaffected by the dividend decision and the operating cash flows are same no matter which dividend policy is adopted.The modelUnder the assumptions stated above, MM argue that neither the firm paying dividends nor the shareholders receiving the dividends will be adversely affected by firms paying either too little or too much dividends. They have used the arbitrage process to show that the division of profits between dividends and retained earnings is irrelevant from the point of view of the shareholders. They have shown that given the investment opportunities, a firm will finance these either by ploughing back profits of if pays dividends, then will raise an equal amount of new share capital externally by selling new shares. The amount of dividends paid to existing shareholders will be replaced by new share capital raised externally.In order to satisfy their model, MM has started with the following valuation model.P0= 1* (D1+P1)/ (1+ke)Where,P0 = Present market price of the shareKe = Cost of equity share capitalD1 = Expected dividend at the end of year 1P1 = Expected market price of the share at the end of year 1With the help of this valuation model we will create a arbitrage process, i.e., replacement of amount paid as dividend by the issue of fresh capital. The arbitrage process involves two simultaneous actions. With reference to dividend policy the two actions are:· Payment of dividend by the firm· Rising of fresh capital.With the help of arbitrage process, MM have shown that the dividend payment will not have any effect on the value of the firm. Even if the firm pays dividends, resulting in a increase in market value of the share, the effect on the value of the firm will be neutralised by the decrease in terminal value of the share.
What is the significance of the fact that the corrugated box market is 80 per cent integrated?
This means that 80 percent of all containerboard (the linerboard facing and corrugated fluting that together make a corrugated box) is not sold on the open market.
What is the market cap for WisdomTree US Dividend Growth Fund DGRW?
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What is the market cap for Nuveen Tax Advantaged Dividend Growth Fund JTD?
As of July 2014, the market cap for Nuveen Tax-Advantaged Dividend Growth Fund (JTD) is $240,295,200.60.
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As of July 2014, the market cap for Gabelli Dividend (GDV) is $1,837,593,411.60.
What is the market cap for Dividend and Income Fund DNI?
As of July 2014, the market cap for Dividend and Income Fund (DNI) is $139,734,554.58.
What is the market cap for Delaware Enhanced Global Dividend DEX?
As of July 2014, the market cap for Delaware Enhanced Global Dividend (DEX) is $204,164,725.05.
What is the market cap for BlackRock Dividend Income Trust BQY?
As of July 2014, the market cap for BlackRock Dividend Income Trust (BQY) is $81,325,217.44
What does dividend suspended mean in the share market?
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What is the market cap for WisdomTree Middle East Dividend Fund GULF?
As of July 2014, the market cap for WisdomTree Middle East Dividend Fund (GULF) is $56,925,000.00.
What is the market cap for First Trust Dividend and Income Fund FAV?
As of July 2014, the market cap for First Trust Dividend and Income Fund (FAV) is $77,474,269.46.
What is the market cap for Alpine Global Dynamic Dividend Fund AGD?
As of July 2014, the market cap for Alpine Global Dynamic Dividend Fund (AGD) is $133,205,754.58.
