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Unformatted text preview: Dividend Discount Model (DDM) Non-Constant Growth Zero Growth of Dividends EPS = net income / total # of shares-Payout -Plowback-Payout ratio + Plowback ratio = 1-G = ROE * Plowback ratio Constant Growth G – sustainable growth rate of Dividend Expected Returns Solving for R Non constant Growth Dividend Yield + Capital +/-Zero Growth of Dividends Dividend Yield Div0 = Div1 = Divt Constant Growth Find future expected Div. CH7 Net Present Value (NPV) Def – Present value of (a) cash flows minus the initial investments NPV = - initial investment + PV of cash flows NPV = PV of cash flows – initial investment C0 + C1/(1+r)^1 + C1/(1+r)^2 + C1/(1+r)^3 +…… Ct/(1+r)^t Opportunity Cost of Capital – Expected Rate of Return given up by investing in another projects R = opportunity cost (%) **********If NPV is greater than 0 you invest in the project********************...
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State.