EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 18, Problem 2PS
Summary Introduction
To describe: The circumstances in which the applicability of multistage
Introduction:
Multistage dividend discount model: This model is used to calculate the intrinsic value of a stock at different growth phases of the stock. The constant growth model, or
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In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?
Explain why it would be difficult to use the dividend discount model (DDM) to value a new and growing company in detail
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?
Chapter 18 Solutions
EBK INVESTMENTS
Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - Prob. 4PSCh. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Prob. 8PSCh. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 5CPCh. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CP
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- Calculate Ndovu plc’s cost of equity using both the capital asset pricing model (CAPM) and the dividend growth model, and explain why the two methods give different answers.arrow_forwardExplain why it would be difficult to use the dividend discount model (DDM) to value a new and growing company.arrow_forwardWhat is the reason for using a two-stage dividend growth modelarrow_forward
- What is the assumption of the dividend growth model? Comment on the reasonableness for the assumptions of the dividend growth model.arrow_forwardWhat is the rationale for valuing a firm using the two-stage dividend discount model versus other valuation methods?arrow_forwardThere are two basiv assumptions concerning the growth rate that underlie the dividend growth model. Identify one of these assumption and explain why the assumption is logicalarrow_forward
- If you want to value a firm that consistently pays out its earnings as dividends, the simplest model for you to use is the A) total payout method. B)valuation based on comparable firms. C) dividend-discount model. D) discounted free cash flow model.arrow_forwardDefine each of the following terms:a. Target payout ratio; optimal dividend policyb. Dividend irrelevance theory; bird-in-the-hand fallacyc. Information content (signaling) hypothesis; clienteles; clientele effectd. Catering theory; residual dividend modele. Low-regular-dividend-plus-extrasf. Declaration date; holder-of-record date; ex-dividend date; payment dateg. Dividend reinvestment plan (DRIP)h. Stock split; stock dividendi. Stock repurchasearrow_forwardWhen is it appropriate to use the dividend valuation models, such as the Zero Growth Model, constant growth model and variable growth model, in estimating the price of a stock?arrow_forward
- multible choice, In applying the constant-growth dividend model, increasing the market capitalization rate will cause a stock’s intrinsic value to? why? decrease increase remain unchanged. decrease or increase, depending upon other factors.arrow_forwardDefine constant dividend growth modelarrow_forwardAssuming that the required rate of return is determined by the CAPM, explain how you would usethe dividend growth model to estimate the pricefor Stock i. Indicate what data you would need,and give an example of a “reasonable” value foreach data input. How would this be differentif you used free cash flows as the basis for yourevaluation?arrow_forward
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