chap12_equity_valuation

chap12_equity_valuation - Chapter 12 Equity Valuation...

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Unformatted text preview: . Chapter 12 Equity Valuation . Dividend Discount Models: General Model V D k o t t t = + = ∞ ∑ ( ) 1 1 • V = Value of Stock • D t = Dividend • k = required return • Present value of all expected future dividends . Why just dividends? 1 1 2 2 1 1 1 V D k D k D P k N N N = + + + + + + ( ) ( ) ( ) ... • P N = the expected sales price for the stock at time N • N = the specified number of years the stock is expected to be held • Capital gains will be determined by dividend forecast at the time the stock is sold . No Growth Model V D k o = • Stocks that have earnings and dividends that are expected to remain constant • Preferred Stock . No Growth Model: Example E 1 = D 1 = $5.00 k = .15 V = $5.00 / .15 = $33.33 V D k o = . Constant Growth Model Vo D g k g o = +- ( ) 1 • g = constant perpetual growth rate...
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chap12_equity_valuation - Chapter 12 Equity Valuation...

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