Duke Power Example

Duke Power Example - Duke Power Example 5.2 dividend yield...

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Duke Power Example 5.2% dividend yield; 4.1% rate of dividend growth projected; seems to imply a 9.3% required rate-of-return on equity for Duke Power. Danger: your estimate of the required rate-of-return is only as good as your estimate of dividend growth. Do not use the simple constant-growth formula to test whether the market is correct in its assessment of stock value. If your estimate is different, it is more likely that you are wrong than that the marekt is wrong. Earnings Suppose a business is earning $10 a share (expected to continue forever), the market capitalization rate is 8%, and the firm pays out some of its earnings as dividends and invests the rest in projects that yield the market capitalization rate--and suppose we know that the company is going to be able to continue this policy forever. What is its price? You might say that you need to know the dividend in order to calculate its price. Actually, you don't. Suppose it pays a dividend of zero. Then next year it is earning $10.80--and if it then starts
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This note was uploaded on 11/10/2011 for the course GEB GEB1011 taught by Professor Henn during the Fall '10 term at Broward College.

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Duke Power Example - Duke Power Example 5.2 dividend yield...

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