3.1.MOS3311Lecture3InClass

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Long Term Financing - Stock Information based on Chapter 6, 15 and 20 1
Stock and Stock Valuation Dividend Discount Models (DDM) V0 =current value; Dt=dividend at time t; k = required rate of return The DDM says the stock price should equal the present value of all expected future dividends into perpetuity. 2 ( ) ( ) ... 1 1 1 3 3 2 2 1 0 + + + + + + = k D k D k D V
Stock and Stock Valuation Zero Growth Case : If the dividend paid by the corporation is not expected to change, then we treat the dividend as a perpetuity. The present value of all dividends, then, is 3 r Div P 1 0 =
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