Answer:
when valuing companies with temporarily high growth rates.
Explanation:
Discounted dividend models are methods to assess a company's share price based on the dividends that company will distribute in the future. Also known by its name in English dividend discount model (DDM).
These models are based on the theory that the price of a share must be equal to the price of the dividends that the company will deliver, discounted at its net present value.
If the price of the share in the market is lower than the result obtained by the discounted dividend model, the share is undervalued and therefore it is advisable to buy. If, on the contrary, the market price is higher than the model, it is understood that the share price is too high.
Multistage dividend growth models
It is very difficult for a company to experience the same growth every year as the Gordon model assumes, so multistage models assume different growths for each period.
The most common is to use two or three stage growths, where at first the growths are higher but then tend to stabilize at a smaller constant growth. As for example in early stage companies.
Answer:
30.92%
Explanation:
You find the answer by calculating the cost of equity using two methods; Dividend discount model and CAPM
<u>Dividend discount model;</u>
cost of equity; r = (D1/P0) +g
whereby, D1 = next year's dividend = 3.00
P0= current price = 13.65
g = dividend growth rate = 11% or 0.11 as a decimal
r = (3/13.65) + 0.11
r = 0.2198 + 0.11
r= 0.3298 or 32.98%
<u>Using CAPM;</u>
r = risk free + beta (Market risk premium)
r = 0.049 + (2.8 * 0.0856)
r = 0.049 + 0.2397
r = 0.2887 or 28.87%
Next, find the average of the two cost of equities;
=(32.98% + 28.87% )/2
= 30.92%
Which of the following types of business environment is MOST typical of the Commonwealth Caribbean area?
a) Corporate state
b) Mixed economy
c) Centrally planned
d) Perfectly competitive
Answer is b) Mixed economy
Answer:
Option (c) is correct.
Explanation:
Given information states that bananas and tangerines are substitute goods. We know that the cross price elasticity of substitute goods is positive which means that there is a positive relationship between the price of one good and the quantity demanded for substitute good.
Therefore, in our case as the price of bananas increases and all the other factors remains constant then as a result the quantity demanded for tangerines increases.
