Question

an assessment of the merits and pitfalls of using the dividend growth model to estimate the stock price of a non-dividend-paying stock. In your assessment, do the following: Compare and contrast how the variables in the dividend growth model affect the valuation of a dividend-paying stock and a non-dividend-paying stock. Include information from the company you located to support your assessment.

Answer #1

Dividend Growth Model used to claculate the fair price of share by using growth rate. This model work on caertain assumptions:

(i) Infinite life of stock

(ii) Dividend rate is regular and constant

Dividend growth model is mostly used in companies which pays dividend on regular basis and at a constant rates. For low or no dividend paying companies, the model may prove inappropriate since the model bases its assumptions that the company growth will be constant.

Current Price of stock = D_{1} / (k_{e} - g)

where D_{1} = Dividend for coming year

K = required rate of return ; K_{e} must be greater than
g if K_{e} is less than g then current price will be
-ve

g = growth rate of dividend

A non dividend paying company can use this model to estimate the fair value by making an educated guess on the future dividends and applying some margin of error.

Explain the difference between using the zero-growth dividend
valuation model and the constant-growth dividend valuation model
when finding the intrinsic value of common stock and preferred
stock.
How does adding a growth rate to the valuation process affect
the intrinsic value?

Calculate the intrinsic value for the shares of your selected
company using Dividend growth model or P/E Ratio model. Justify the
workings, if any. Compare the intrinsic value to its current share
price. Is the share overvalued or undervalued? Explain in detail
the rationale(s) of using Dividend growth model or P/E Ratio model
in your stock valuation.
[Hint: The financial data could be obtained from the company’s
annual reports]
For AIR ASIA group berhad
Dividend growth model= D1/(k-g)
=RM0.9/...

Write a 1-2 page (approximately 500 words) paper on :
DISNEY COMPANY
Part A-Fundamental Valuation:
Estimate a growth rate for your firm's
Dividends per Share.
Assume a 12.5% discount rate.
Calculate an estimated value of a share of the
stock using the constant-growth model (Eq. 8-6 in the textbook),
also known as the Gordon growth model.
Compare and contrast your valuation results
with the current share price in the market.
Respond to this question: What changes in the
variables would...

Which of the following is not true? Group of answer choices
The dividend growth model seeks to estimate the current market
value of a stock by calculating the total future value of the
future dividend payments.
The dividend growth model cannot be used to estimate the current
market value of stocks of firms that don’t issue any dividends.
There are ways other than the dividend growth model to conduct
stock valuation, including multiplying a benchmark
Price-to-Earnings ratio with earnings per...

Find a publicly traded stock which has a dividend payable to
shareholders. Assuming zero growth in the dividend and you require
a 8% return, calculate the stock's intrinsic price value. Compare
the intrinsic value with the stock's current price. If the
intrinsic price is below the current price, is this a stock that is
a good value for investment? If the intrinsic price is above the
current price, is this stock overvalued? Use the internet to find
sources of information...

use the following information to answer the questions. The made
up company name is ABC.
Price: $20
R: 12%
G: 4%
D0: 1.10
P/E: 16
EPS: 1.25
Analyst E growth: 7%
Now answer the following below using the above
information that’s provided:
· Part
A-Fundamental Valuation:
1. Estimate a growth rate for
your firm's Dividends per Share.
2. Assume a 12.5% discount
rate.
3. Calculate an estimated
value of a share of the stock using the constant-growth model (Eq.
8-6...

Determine the value of a stock with the following variables
using the constant growth model:
Current annual dividend: $1.50 per share
Required return rate: 6.5%
Constant growth rate: 4.5%
a.) $78.38
b.) $35.50
c.) $75
d.) $79.88
Determine the value of a stock with the following
variables using the constant growth model:
Current annual dividend: $2 per share
Required return rate: 6%
Constant growth rate: 4%
a.)$100
b.)$106
c.)$104
d.)$53
Determine the value of a stock with the following
variables...

What was the dividend payout ratio? If you are shareholder of
this company, how would it affect you if company does not pay any
dividend? If managers of the company want to influence the stock
price by paying higher dividend, can they do so? If managers of
this company do not pay dividend in any year, what could be the
possible reasons? Support your viewpoint with relevant theoretical
foundations.

Nonconstant Dividend Growth Valuation A company currently pays a
dividend of $3.6 per share (D0 = $3.6). It is estimated that the
company's dividend will grow at a rate of 15% per year for the next
2 years, and then at a constant rate of 7% thereafter. The
company's stock has a beta of 1.2, the risk-free rate is 7.5%, and
the market risk premium is 3.5%. What is your estimate of the
stock's current price? Do not round intermediate...

Nonconstant Dividend Growth Valuation
A company currently pays a dividend of $4 per share
(D0 = $4). It is estimated that the company's dividend
will grow at a rate of 20% per year for the next 2 years, and then
at a constant rate of 6% thereafter. The company's stock has a beta
of 1.4, the risk-free rate is 6.5%, and the market risk premium is
2%. What is your estimate of the stock's current price? Do not
round intermediate...

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