Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 18, Problem 1CP

a.

Summary Introduction

To evaluate: The director’s statement based on constant-growth dividend discount model.

Introduction:

Constant-growth dividend discount model: This model is created by Mr. Gorden. This is also called as “Gorden growth model”. According to this model, it is assumed that the company exists forever and will pay dividends per share with an increase at a constant rate.

b.

Summary Introduction

To evaluate: The change in sustainable growth rate and growth in book value due to an increase in dividend payout.

Introduction:

Sustainable growth rate: It is supposed to be maximum rate of growth that a company can sustain without a growth in finance through debt or equity.

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