Q4: Discuss the Dividend Discount Model in stock valuation from the following aspects (1) Explain the underlying assumptions of DDM valuation model. (2) Identify the factors that must be estimated when value the stock with this model. (3) Explain the problems in using dividend valuation model to value the companies that are quite small and are growing rapidly. <

Q4: Discuss the Dividend Discount Model in stock valuation from the following aspects (1) Explain the underlying assumptions of DDM valuation model. (2) Identify the factors that must be estimated when value the stock with this model. (3) Explain the problems in using dividend valuation model to value the companies that are quite small and are growing rapidly. <

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 5MC: Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its...

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Q3: With a dividend discount model, how do you estimate the cost of equity capital? What is the critical variable in this model?
10.Which of the following statement on stock valuation is incorrect?a.In dividend discount model, the stock value is the present value of all future dividends.b.We may use the dividend discount model to value all firms. c.Enterprise value is the sum of equity and debt minus cash. d.We may use price-earnings ratio to compute the value to comparable firms.
The market's reaction to the announcement of a change in the firm's dividend payout is referred to as the:Question 25Answer A. information content effect. B. MM Proposition II. C. MM Proposition I. D. efficient markets hypothesis.
PART I. a. What is the effect in the stock valuation if the growth rate increase by the same rate as the increase in discount rate? b. What do you think is the disadvantage of using the relative techniques in valuation compared to discounted cash flow techniques? c. What do you think is the disadvantage of using the relative techniques in valuation compared to discounted cash flow techniques?
1. Is stock bonus a real dividend payment in principle? 2. Briefly describe the information signaling effect caused by dividend reduction announcement (in terms of assumption and market reaction)
1. The P/E method of valuation is appropriate for Value investors. What does it mean if the P/E ratio is higher than the industry average? Should you buy the stock or not? 2. Why is EPS an inferior measure compared to cash flow? In what way is it a superior measure for stock investing compared to cash flow analysis?
how do the upward trend and downward trend of share price(stock price changes) relates to the market efficiency (weak,semistrong,strong form) chapter : market efficiency and behavioral finance
Fountain Corporation's economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm's only activity and that the firm will close one year from today. The company is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability .50 .50 Bad Good Low-Volatility Project Payoff $ 5,400 6,550 High-Volatility Project Payoff $ 4,800 7,150 a. What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. What is the expected value of the company's equity if the…
QUESTION 4 Which of the following statements is true? O A. The DuPont Identity is used to calculate Return on Assets. O B. A company can imporve their P/E ratio by improving their EPS. O C.A Market to Book ratio greater than 1 always means the stock is undervalued. O D. All of the statements are false.
2. What are flotation costs? 3. How is cost of common equity computed for no growth stock? for constant growth stock? 4.What is a dividend yield? 5. Define the following terms used in Capital Asset Pricing Model (CAPM) to compute for cost of equity: a. Risk-free rate b. Stock's Beta Coefficient C. Market risk premium 6. How is cost of equity under Bond Yield Plus Risk Premium Approach computed? 7. How is weighted average cost of capital (WACC) computed?
which one is correct please confirm? QUESTION 7 The cost of equity capital for non-dividend paying stocks can be determined by ____. I. using the Capital Asset Pricing Model II. estimating ke for comparable dividend-paying stocks in their industry a. Only statement I is correct. b. Only statement II is correct. c. Both statements I and II are correct. d. Neither statement I nor II is correct.
Apart from using PE ratio, what is another way of valuing the stock price? if we have the EPS, Share Price, Dividend Per Share, ROE and the discount rate (R). And what are the assumptions and the limitations of this model? What can be said about the dividend growth model? Similarly what can be said about the capital asset pricing model?