Pod gc D

This is the infinite period dividend discount model. Professor's Note In much of the finance literature, you will see this model referred to as the constant growth DDM, the constant growth dividend valuation model, or the Gordon Growth Model. Whatever you call it, D over k minus g should be permanently tattooed on your brain. Note that our valuation model for preferred stock is the same as the constant growth model with no growth (g 0). Example Infinite period DDM valuation Calculate the value...

LOS 50a Review cash dividends stock dividends stock splits and reverse stock splits and calculate and discuss their

Cash dividends, as the name implies, are payments made to shareholders in cash. They come in three forms * Regular dividends occur when a company pays out a portion of profits on a consistent schedule (e.g., quarterly). A long-term record of stable or increasing dividends is widely viewed by investors as a sign of a company's financial stability. * Special dividends are used when the company does not have a regular dividend schedule or it favorable circumstances allow the firm to make a...

LOS 50h Calculate the effective tax rate on a dollar of corporate earnings distributed as a dividend using the

Dividends paid in the United States are taxed according to what is called a double-taxation system. Earnings are taxed at the corporate level regardless of whether they are distributed as dividends, and dividends are taxed again at the shareholder level. In 2003, new tax legislation was passed in the U.S. that reduced the maximum tax rate on dividends at the individual shareholder level from 39.6 to 15 . Since a dollar ot earnings distributed as dividends is the first taxed at the corporate...

LOS 50g Summarize the factors affecting dividend payout policy

A company's dividend payout policy is the approach a company follows in determining the amount and timing ot dividend payments to shareholders. Six primary factors affect a company's dividend payout policy Signaling effect. Unexpected changes in a company's dividend policy are often viewed by investors as a signal from management about projections of the firm's future performance. In other words, stockholders perceive changes in dividend policy as conveying important information about the firm....

LOS 48d Explain the analysts concern with the marginal cost of capital in evaluating investment projects and explain

Marginal Cost Capital Curve

A company increases its value and creates wealth tor its shareholders by earning more on its investment in assets than is required by those who provide the capital tor the firm. A firm's WACC may increase as larger amounts of capital are raised. Thus, its marginal cost of capital, the cost of raising additional capital, can increase as larger amounts are invested in new projects. This is illustrated by the upward sloping marginal cost of capital curve in Figure 1. Given the expected returns...

Study Session 14

The topical coverage corresponds with the following CFA Institute assigned reading 59. An Introduction to Security Valuation a. explain the top-down approach, and its underlying logic, to the security valuation process, page 160 b. explain the various forms of investment returns, page 161 c. calculate and interpret the value of a preferred stock, or of a common stock, using the dividend discount model DDM . page 161 d. show how to use the DDM to develop an earnings multiplier model, and explain...