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[DOC File]Quiz 1: Fin 819-02
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The constant dividend growth formula P0 = D1/(r-g) assumes: A) The dividends are growing at a constant rate g forever. B) r > g . C) g is never negative. D) Both A and B . E) None of the above. Answer: D. 4. Casino Co. is expected to pay a dividend of $6 per share at the end of year one and these dividends are expected to grow at a constant ...
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[DOC File]CHAPTER 1
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a. the historical dividend growth rate for the firm. b. the expected growth rate in the economy or industry. c. the expected inflation over the long run for the firm. d. None of the above choices are correct. (difficult, L.O. 2, Section 4, d) The dividend discount model can be modified to work with more complex patterns of dividend rates.
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[DOC File]Dividend discount model (a
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This is quite easy. Simply multiply the current dividend by one plus the growth rate. That is: D1 = D0 (1+g). Expected rate of return. This formula is really a manipulation of the dividend discount model. In this formula we know the stock price and we are solving for the rate of return. As before, D1 is the dividend that is expected next period.
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[DOC File]Solutions to Quiz 2 are after the questions
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Growth rate = (plow-back ratio) x (ROE) = 0.6 x 0.12 = 0.072. Using the dividend growth model: P = ExpDiv/(r-g) = 2/(0.1-0.072) = $14.29. 9. A 10. C Approx YTM = Interest amount + (par value – price)/n (price + par value)/2 = 60 + 84.52/5. 957.74 = 0.08. 11. A 12. D % Change in bond price = …
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[DOC File]Chapter 13 The Cost of Capital
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It is often convenient to assume a constant expected dividend growth rate in . perpetuity. The formula above then simplifies to: Re-arrange this, we get a formula for the ordinary shareholders’ cost of capital. or 2.4.2 Example 3. A share has a current market value of 96c, and the last dividend was 12c. If the expected annual growth rate of ...
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Chapter 9
Explain how (a) the payout rate, (b) the expected dividend growth rate, and (c) the required rate of return affect the P/E ratio. Answer: To answer this question, substitute the DDM into the P/E formula. P/E = P0 = D1/(k – g) = D1/E1. E1 E1 k – g. From the above formulation, one can see that (a) a higher payout will increase D1 causing a ...
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[DOC File]Revision 1 Advanced Investment Appraisal
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future dividend per share is expected to grow constantly, the cost of equity can be calculated as follows (dividend growth model): or 1.1.3 Weaknesses. of the dividend growth model (a) The model does not incorporate risk (b) Future dividend growth rate. is . not constant in . perpetuity (c) Estimating the future dividend growth rate. is also ...
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[DOC File]Answers to Text Discussion Questions
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What two conditions are necessary to use Formula 7–5 on page 147? 7-5. The growth rate must be constant in nature. Ke (the required rate of return) must exceed g (the growth rate). 6. How can companies with nonconstant growth be analyzed? 7-6. Growth is simply divided into several periods with each period having a present value.
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Expected dividend growth rate formula