408 Ch 8 Stocks

408 Ch 8 Stocks - Chapter 8 Cash Flows 8.1 Common Stock...

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Chapter 8 8.1 Common Stock Valuation Cash Flows The price of the stock today is equal to the present value of all the future dividends. Zero Growth (Constant Dividend) A share of a common stock in a company with a constant dividend is much like a share  of preferred stock.  Because the dividend is always the same, the stock can be viewed as an ordinary  perpetuity   Constant Growth The dividend of some company always grows at a steay rate An asset with cash flows that grow at a constant rate forever is called a  growing  perpetuity Dividend growth model:  A model that determines the current price of a stock as its  dividend next period divided by the discount rate less the dividend growth rate If the growth rate is bigger than the discount rate, the present value of the dividends  keeps getting bigger. The same is true if the growth rate and the discount rate are equal. 
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This note was uploaded on 02/23/2012 for the course BUSI 408 taught by Professor Croce during the Spring '08 term at UNC.

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408 Ch 8 Stocks - Chapter 8 Cash Flows 8.1 Common Stock...

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