finance_mngmt_chap8

finance_mngmt_chap8 - Chapter 8: STOCK VALUATION FORMULAS +...

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Chapter 8: STOCK VALUATION FORMULAS + ones in the big box : Price today, given: price in one year, and dividend in one year Zero-Growth Dividend: Constant Dividend in t periods: Constant Growth: Price in 4 years, given price now and g. Non-constant, then constant growth: Two-stage growth: where: Dividend yield: , then we solve for R. Guarantee a seat, N being # of seats in election: 1/ ( N + 1) + 1 Problem: The next dividend for the Gordon Growth Company will be $4 per share. Investors require a 16 percent return on companies such as Gordon. Gordon's dividend increases by 6 percent every year. Based on the dividend growth model, what is the value of Gordon's stock today? What is the value in four years? Answer: P (0) = 40 P (4) = 50.50 Problem : For example, suppose you have come up with the following dividend forecasts for the next three years:
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After the third year, the dividend will grow at a constant rate of 5 percent per year. The required return is 10 percent. What is the value of the stock today?
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This note was uploaded on 04/06/2012 for the course FIN 300 taught by Professor Longo during the Fall '10 term at Rutgers.

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finance_mngmt_chap8 - Chapter 8: STOCK VALUATION FORMULAS +...

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