Identify the drawbacks of using dividend growth model as part of valuing shares
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- Identify the drawbacks of using dividend growth model as part of valuing shares
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- The optimal distribution strategy achieves a balance between capital gains and current dividends in order to raise the stock price of the company. true or falseEvaluate following statement: “A lower dividend would result a lower share price.”What is the assumption of the dividend growth model? Comment on the reasonableness for the assumptions of the dividend growth model.
- Discuss whether the dividend growth model or the capital asset pricing model should be used tocalculate the cost of equity.The residual dividend approach is the best dividend policy to adopt if a firm’s management wants to maximize the current value per share of the existing stock. Do you agree or disagree with this statement? State and justify your conclusions.To identify the cost of equity, which models are better: The dividend growth model or CAPM-derived cost of equity?
- Define each of the following terms:a. Target payout ratio; optimal dividend policyb. Dividend irrelevance theory; bird-in-the-hand fallacyc. Information content (signaling) hypothesis; clienteles; clientele effectd. Catering theory; residual dividend modele. Low-regular-dividend-plus-extrasf. Declaration date; holder-of-record date; ex-dividend date; payment dateg. Dividend reinvestment plan (DRIP)h. Stock split; stock dividendi. Stock repurchaseA. Why is the goal of financial management to maximize the current share price of the company's stock and not the future share price?Define each of the following terms:a. Optimal distribution policyb. Dividend irrelevance theory; bird-in-the-hand theory; tax effect theoryc. Signaling hypothesis; clientele effectd. Residual distribution model; extra dividende. Declaration date; holder-of-record date; ex-dividend date; payment datef. Dividend reinvestment plan (DRIP)g. Stock split; stock dividend; stock repurchase
