1. Dividend Growth dumbfoundThe basic precondition in the Dividend Growth drum is that the dividend is expected to grow at a constant evaluate. That this ontogenesis rate entrust not change for the duration of the evaluated period. As a result, this whitethorn skew the resultant for companies that atomic number 18 experiencing active offshoot. The Dividend Growth Model is better suited for those stable companies that rail over the model. Those that are growing quickly or that fag out?t pay dividends do not fit the assumption parameters, and indeed this model cannot be used. In this model, a conjunction may not exceed the market growth rate. In addition, since the dividend growth rate is expected to remain constant indefinitely, the separate measures of cognitive process within the company are to a fault expected to countenance the same growth rate. If in the current state, the dividend rate is greater that earnings, in time this model will show a divide nd payout greater 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 rescue and have an conventional and stable dividend payout.
In order to approximation the cost of integrity using the Dividend Growth Model, we simply plant the model?s par for estimating the price of a stock, precondition as much(prenominal):P = D1 / (r ? g)Where P = the price of the stockD1 = the expected Dividend in ane yearr = the required rate of returng = the expect! ed Growth ConstantBy understand 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:
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