Dividend Growth Model, Capital Asset Pricing Model, Modern Portfolio Theory, Estimation of Untraded Stocks

1. Dividend Growth dumbfoundThe basic impudence in the Dividend Growth drum is that the dividend is expected to grow at a constant evaluate. That this growing rate leave not change for the duration of the evaluated period. As a result, this whitethorn skew the resultant for companies that atomic number 18 experiencing fast offshoot. The Dividend Growth Model is better suited for those stable companies that separate over the model. Those that are growing quickly or that presume?t pay dividends do not fit the assumption parameters, and indeed this model cannot be used. In this model, a corporation may not exceed the market growth rate. In addition, since the dividend growth rate is expected to remain constant indefinitely, the otherwise measures of cognitive process within the company are similarly expected to charm the same growth rate. If in the flowing state, the dividend rate is greater that earnings, in time this model will show a dividend payout g reater than the earnings of the company. Conversely, if earnings are growing fast-breaking than dividends, the payout rate will converge towards zero. In summary, the Dividend Growth Model works well for those companies growing at a rate equal to or lower than that of the sparing and have an conventional and stable dividend payout.

In order to work out the cost of integrity using the Dividend Growth Model, we simply ready the model?s par for estimating the price of a stock, addicted as much(prenominal):P = D1 / (r ? g)Where P = the price of the stockD1 = the expected Dividend in ane yearr = the required rat e of returng = the expected Growth ConstantB! y result the equation for k we get the following:P(r ? g) = D1r ? g = D1 / Pr = (D1 / P) + gTherefore in order to estimate the cost of equity... If you want to get a full essay, order it on our website: OrderCustomPaper.com

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