Amy Tanner is an analyst for a US pension fund. Her supervisor has asked her to valuethe stocks of General Electric (GE) and General Motors (GM) Tanner wants to evaluatethe appropriateness of the dividend discount model (DDM) for valuing GE and GM andhas compiled the following data for the two companies from 211 to 2018.GEGMEPS ($)DPS ($) pay-out EPS ($)RatioDPS ($)Yearрay-outRatio20182.171.150.53-68.451.00-0.0120171.991.030.52-3.51.00-0.2920161.760.910.52-18.52.00-0.1120151.610.820.514.942.000.4020141.550.770.505.032.000.4020131.510.730.483.352.000.6020121.410.660.471.772.001.1320111.270.570.456.682.000.30For each of the stocks, do a critical analysis and suggest whether the DDM is appropriatefor valuing the stocks.

Dividend discount model- It is a method of valuing a company's stock price based on the logic that…

EPS ($) DPS ($) pay-out EPS ($) DPS ($) Ratio Year рay-out Ratio 2018 2.17 1.15 0.53 -68.45 1.00 -0.01 2017 1.99 1.03 0.52 -3.5 1.00 -0.29 2016 1.76 0.91 0.52 -18.5 2.00 -0.11 2015 1.61 0.82 0.51 4.94 2.00 0.40 2014 1.55 0.77 0.50 5.03 2.00 0.40 2013 1.51 0.73 0.48 3.35 2.00 0.60 2012 1.41 0.66 0.47 1.77 2.00 1.13 2011 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, do a critical analysis and suggest whether the DDM is appropriate for valuing the stocks.

EPS ($) DPS ($) pay-out EPS ($) DPS ($) Ratio Year рay-out Ratio 2018 2.17 1.15 0.53 -68.45 1.00 -0.01 2017 1.99 1.03 0.52 -3.5 1.00 -0.29 2016 1.76 0.91 0.52 -18.5 2.00 -0.11 2015 1.61 0.82 0.51 4.94 2.00 0.40 2014 1.55 0.77 0.50 5.03 2.00 0.40 2013 1.51 0.73 0.48 3.35 2.00 0.60 2012 1.41 0.66 0.47 1.77 2.00 1.13 2011 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, do a critical analysis and suggest whether the DDM is appropriate for valuing the stocks.

Century 21 Accounting Multicolumn Journal

11th Edition

ISBN:9781337679503

Author:Gilbertson

Publisher:Gilbertson

Chapter17: Financial Statement Analysis

Section17.4: Analyzing Financial Statements Using Financial Ratios

Problem 1WT

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