Question

The mixed growth dividend discount model of share valuation allows for the fact that

Select one:

a. companies typically go through life cycles.

b. all these answers are correct.

c. some companies do not pay any dividends.

d. some companies will fail and go into liquidation.

Answer #1

**Companies typically go through life cycles**.
(which is **Option A**)

____

**Explanation**:

A company may pay different dividends at different points of time as it goes through life cycles. In the initial years, the company may experience may supernormal growth in its earnings. In such years, it may not pay dividends at all and may decide to retain all of its earnings for undertaking expansion/growth projects. Once the earnings of the company get stabilized (over a period of time), it may decide to pay dividends on a regular basis. As a consequence, It can be concluded that for many companies a constant rate of dividend may not be possible and the company may need to revisit its dividend policy from time to time. Therefore, Option A is correct.

The dividend discount valuation model equates the current stock
price to:
Select one:
A. All future expected dividends
B. All future expected dividends discounted by the weighted
average cost of capital
C. All future expected dividends discounted by the cost of
equity capital
D. The current dividend divided by current earnings per
share

Which of the following statements is most correct? Select
one:
a. The constant growth model is often appropriate for companies
that the dividend growth rate is larger than its required rate of
return on stock.
b. The constant growth model is often appropriate for companies
that never pay dividend.
c. Two firms with the same dividend and growth rate should have
the same stock price.
d. The constant growth model can be applied to companies that
expect zero dividend growth...

Which of the following statements is most correct?
Select one:
a. The constant growth model is often appropriate for companies
that never pay dividend.
b. The constant growth model is often appropriate for mature
companies with a stable history of growth.
c. Two firms with the same dividend and growth rate must also
have the same stock price.
d. The constant growth model cannot be applied to companies that
expect zero dividend growth rate.
e. The constant growth model is...

Which of the following is not a problem with the dividend-growth
model:
Select one or more:
a. the discount rate is hard to calculate accurately
b. there are no problems, it is 100% accurate
c. dividend growth rates are hard to predict
d. only works with firms that are paying dividends
e. the market growth rate is a “constant” that doesn’t
change

Write out the formula for the constant growth dividend valuation
model. What key assumptions are required?
You are interested in buying a share that paid its last annual
dividend 9 months ago. You can assume that the next dividend
payment (3 months from today) will be €1.50. The company
anticipates that dividend growth rates will be 5% annually for the
next two dividends and 2% thereafter. Assuming the firm’s cost of
equity rE is 9%, how much should you pay...

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...

Common Stock Valuation, Pt. I - Discussion #1
No unread replies.No replies.
Dividend discount model - ex. #1
(Note: This is similar to a former exam question.)
a. Using the dividend discount model, what is the current market
value of a stock (i.e., P0) that has a par value of $0.10 per
share, a dividend growth rate of 5%, and an expected dividend of $
.80 per share at the end of the year, assuming your required rate
of return...

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/...

Consider the valuation for the share of a company. The company’s
next dividend will be paid immediately (i.e. after the purchase)
and is equal to £3. Subsequently, dividends will arrive yearly.
They are expected to grow at a rate of 10% per year, but stop
growing at that rate once the dividend 3 years from now has been
paid. After that, the growth rate of dividends is expected to be 2%
and to stay at that level. The investor uses...

An important application of the Dividend Discount Model
(DDM) and the CAPM is in regulating public utilities. Suppose the
State of Iowa allows MidAmerican to yield a 15% return on equity,
and in return, MidAmerican would re-invest 60% of its earnings in
its business operations, including improvements on natural gas
infrastructure.
MidAmerican is expected to pay $6 dollar per share in
dividends one year from now. Answer the following
questions.
1. If the risk-free rate is 1%, market’s risk premium...

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