GottaGrow Corporation has expected earnings per share of $10. It has a history of paying cash dividends equal to 25% of earnings. The market capitalization rate for GottaGrow stock is 10% per year, and the expected rate of return on future investments is 10% per year. Using the constant growth rate discounted dividend model, what is the expected growth rate of dividends? What is the model’s estimate of the present value of the stock? What is the expected price of a share a year from now?
GottaGrow Corporation has expected earnings per share of $10. It has a history of paying cash
dividends equal to 25% of earnings. The market capitalization rate for GottaGrow stock is 10% per
year, and the expected rate of
rate discounted dividend model, what is the expected growth rate of dividends? What is the model’s
estimate of the
The dividend discount model (DDM) is a quantitative method used for predicting the worth} of a company's stock supported the idea that its contemporary price is definitely worth the add of all of its future dividend payments when discounted back to their gift value. It makes an attempt to calculate the honest value of a stock regardless of the prevailing market conditions and takes into thought the dividend pay out factors and therefore the market expected returns.
Value of stock = D1 / (k - g)
where:
D1 = next year's expected annual dividend per share
k = the investor's discount rate or required rate of return,
g = the expected dividend growth rate (note that this is assumed to be constant)
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