Below is the most recent financial information for Excellent Books Company. If the firm decides to maintain a constant debt-to-equity ratio, what is the maintain? The assumptions for this question are as follows: (T) Profit margin is constant (II) Asset accounts vary directly with sales (III) Dividend payout ratio is constant (TV) The firm can only issue debt to finance growth and no stocks will be issued or repurchased (V) Average tax rate is constant Revenues COGS Depreciation Income Statement (in thousands) EBIT Interest Taxable income Taxes (21%) Net Income Dividends (Payout Ratio- 30%) Additions to Retained Earnings Year 2022 1543.00 760.00 40.00 743.00 48.00 695.00 145.95 549.05 164.72 384.34 Year 2022 Current Assets Net Fixed Assets Total Assets 650 1,800 2,450 Balance Sheet (in thousands) Year 2022 Accounts Payable Long term debe Shareholders' Equity Total Lia & Eq
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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