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[DOC File]CHAPTER 8
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is equivalent to the valuation model for preferred stock. assumes the highest required return possible. (c, easy) 9. The dividend model that is most appropriate for a young company that pays small dividends now but is expected to increase dividends in a few years is the: zero-growth model. constant growth model. expansion growth model. multiple ...
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[DOC File]Chapters 1&2 - Investments, Investment Markets, and ...
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The stock is valued as a perpetuity and discounted at a rate ks: b. The constant growth model of common stock valuation, also called the Gordon model, assumes that dividends will grow at a constant rate, g. The stock is valued as the present value of the constantly growing cash flow stream: c.
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CHAPTER 7
The zero growth model is a special case of the constant growth valuation model. True or . False . The variable growth model consists of a high growth and a no growth period. True or . False . 10. It is possible for the sustainable growth rate for a firm’s cash flow to exceed the overall market growth rate indefinitely. True or False . 11.
constant growth stock valuation formula

[DOC File]ANSWERS TO REVIEW QUESTIONS
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In the constant-growth (Gordon) model, P0 = D1/(k – g) and the required return, k, must exceed the dividend growth rate, g, to calculate a finite stock price. When k > g, the constant growth model can derive useful valuation estimates.
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[DOC File]Answers to Text Discussion Questions
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The constant growth model is not appropriate for stock valuation in the absence of a constant growth rate. If the required rate of return differs for the two firms due to risk differences, then the firms’ stock prices would differ.
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[DOC File]A Primer on Valuation Methodology - Elsevier
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Thus, the constant growth dividend valuation model (Formula 7-5) gives the same answer as taking the present value of three years of dividends plus the present value of the price of the stock after three years. The reason this holds is that growth is the same for all years. Appropriate use of constant growth dividend model. 8.
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Chapter 9
Constant growth model: V0 = D1 / (k-g) Stock price and PVGO. Variable growth (multi-stage growth) model. Alternative models. 7. Preferred stock valuation: concepts and calculations. Preferred stocks can be valued in the same way as common stocks with no growth. 8. Homework problems and examples discussed in class.
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The Constant Growth Approximation to Stock Valuation - Financial …
Dividend Discount Model-Constant Growth-Gordon Model. Assumes a constant growth in dividends. Dividends expected to grow at a constant rate, g, over time. where. g: growth rate. ke: required return. Ke > g. D1 is the expected dividend at end of the first period. D1 =D0 (1+g) Implications of constant growth. Stock prices grow at the same rate as ...
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[DOC File]FIN432 Investments
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l. Normal, or constant, growth occurs when a firm's earnings and dividends grow at some constant rate forever. One category of nonconstant growth stock is a "supernormal" growth stock which has one or more years of growth above that of the economy as a whole, but at some point the growth rate will fall to the "normal" rate.
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[DOC File]Common Stock Valuation
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Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) P 0 = $3.85 / (.12 – .0475) P 0 = $53.105. The required return of a stock is made up of two parts: The dividend yield and the capital gains yield. So, the required return of this stock is: R = Dividend yield + Capital gains yield . R = .043 + .058 ...
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Constant growth model stock valuation