Question

Which method do you prefer for finding the intrinsic value of a stock; the dividend discount...

Which method do you prefer for finding the intrinsic value of a stock; the dividend discount method or the CAPM? WHY?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

DIVIDEND DISCOUNT MODEL: IT TAKES BASE AS THE CURRENT VALUE OF STOCK ON FUTURE VALUE OF DIVIDENDS. WE COMBINE ANNOUNCED DIVIDENDS WITH FINANCIAL PROJECTIONS TO GET DIVIDEND VALUE. THEN WE USE MODEL'S FORMULA TO DISCOUNT FUTURE VALUE OF DIVIDENDS TO PRESENT.

CAPITAL ASSET PRICING MODEL: IN THIS MODEL, WE CONSIDER MANY FACTORS:

  • EXPECTED RATE OF RETURN
  • RISK FREE RATE OF RETURN
  • MARKET'S AVERAGE RATE OF RETURN
  • SENSITIVITY OF THE INVESTMENTV?

WE GENERALLY PREFER CAPM OVER DDM AS DDM IS UNSUCCESSFUL IF OUR INVESTMENT ISN'T ISSUING DIVIDENDS. CAPM HAS ADVANTAGE AS IT LOOKS ON MANY OTHER FACTORS THAN DIVIDEND ALONE.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Using the dividend discount model, calculate the intrinsic value for the stock today. today is 2017,...
Using the dividend discount model, calculate the intrinsic value for the stock today. today is 2017, you have just been paid a dividend and that the next dividends will be received in exactly one year. (dividend is paid annually) the stock price at 2017 was$ 38.3. dividend pay per share is $1.39. you expect the stock to maintain the same dividend payout ratio(60.8399) as 2017 for the next three years. After three years, the company will increase the dividend payout...
according to discount dividend model,please calculate the intrinsic value for stock today,now is 2015 stock today.now...
according to discount dividend model,please calculate the intrinsic value for stock today,now is 2015 stock today.now the stock price is 38.3,roe is 16.6%,required return is 10%,dividend is 1.39.DPR is 60.8339.In 2016, dividend is 1.547,DPR is 60.9294,in 2017, dividend is 1.695,DPR is 61.1693.assume that the DPR will increase to 70% in 2018.
Why do many corporations continue to use the payback period method? Which method do you prefer?...
Why do many corporations continue to use the payback period method? Which method do you prefer? Explain why you prefer this method
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock....
Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock. She had learnt about dividend discount models as an application of time value of money to price equity instruments. She projected the expected dividends which ABC Co. will be paying. ABC Co. is expected to pay a dividend of $5 at the end of second year with an expected dividend payment of zero for first year. The dividend is expected to grow at 5%...
Based on the dividend discount model, a decrease in which of the following will lower the...
Based on the dividend discount model, a decrease in which of the following will lower the current intrinsic value of a stock (all else held constant)?         I. amount of the next dividend (D1)         II. dividend growth rate (g)         III. risk-adjusted discount rate (rs) Select one: a. I only b. III only c. I and II only d. II and III only e. I, II, and III
What are the limitations of the dividend discount model? A stock currently pays a dividend of...
What are the limitations of the dividend discount model? A stock currently pays a dividend of $4 for the year. Expected dividend growth is 20% for the next three years and then growth is expected to revert to 4% thereafter for an indefinite amount of time. The appropriate required rate of return is 10%. What is this stock’s intrinsic value? What is the rate of return on an investment that costs $500 and is sold after 1 year for $560?
which method do you think is best for taxable deductions and paying less taxes and why?...
which method do you think is best for taxable deductions and paying less taxes and why? Which you prefer to choose? which method do you think is best for taxable deductions and paying less taxes and why? Which you prefer to choose? Straight Line, MACRS, and Declining Balance methods
Q.2. Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co....
Q.2. Nina, a lead fundamental analyst was trying to calculate the intrinsic value of ABC Co. stock. She had learnt about dividend discount models as an application of time value of money to price equity instruments. She projected the expected dividends which ABC Co. will be paying. ABC Co. is expected to pay a dividend of $5 at the end of second year with an expected dividend payment of zero for first year. The dividend is expected to grow at...
In practice, the use of the dividend discount model is refined from the method presented in...
In practice, the use of the dividend discount model is refined from the method presented in the textbook. Many analysts will estimate the dividend for the next 5 years and then estimate a perpetual growth rate at some point in the future, typically 10 years. Rather than have the dividend growth fall dramatically from the fast growth period to the perpetual growth period, linear interpolation is applied. That is, the dividend growth is projected to fall by an equal amount...
Which of the following shareholders of Apple would prefer a stock repurchase to a dividend payment?...
Which of the following shareholders of Apple would prefer a stock repurchase to a dividend payment? Drexel University endowment fund John, a wealthy individual investor Goldman Sachs Corporation
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT