Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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![Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return she is earning. For
example, three years ago she paid $22,000 for 900 shares of Malti Company's common stock. She received a cash dividend of $684
on the stock at the end of each year for three years. At the end of three years, she sold the stock for $22,000. Kathy would like to earn
a return of at least 9% on all of her investments. She is not sure whether the Malti Company stock provides a 9% return and would like
some help with the necessary computations.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. Compute the net present value Kathy earned on her investment in Malti Company stock.
2. Did the Malti Company stock provide a 9% return?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Compute the net present value Kathy earned on her investment in Malti Company stock.
Note: Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.
Net present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1b815388-426e-431e-83e9-76e412c4fca2%2F34d2e8a4-a448-45f1-b01a-b7fd82d3fa4c%2Fbqvg4ce_processed.jpeg&w=3840&q=75)
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