LCT Computers is listed on the Alternative Investment Market (AIM) at the London Stock Exchange. The current market price of their shares is £80 per share. Last year they paid a dividend of £4 per share. This year they plan to pay £4.20 and expect the dividend to grow by 1.39% in the foreseeable future as it did between last year and this year. The finance director of LCT Computers has also collected some information from the market that suggests the treasury rates in the United Kingdom are currently 1.5 percent and the market return is estimated to be 9.5 percent. His calculations also suggest that Brian Computers has a beta of 0.9. What will be the cost of equity for Brian Computers using: the Constant Dividend Growth Model? the Capital Asset Pricing Model?
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
LCT Computers is listed on the Alternative Investment Market (AIM) at the London Stock Exchange. The current market price of their shares is £80 per share. Last year they paid a dividend of £4 per share. This year they plan to pay £4.20 and expect the dividend to grow by 1.39% in the foreseeable future as it did between last year and this year. The finance director of LCT Computers has also collected some information from the market that suggests the treasury rates in the United Kingdom are currently 1.5 percent and the market return is estimated to be 9.5 percent. His calculations also suggest that Brian Computers has a beta of 0.9. What will be the
- the Constant Dividend Growth Model?
- the
Capital Asset Pricing Model ?
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