Please find below the solution.. let me know if you need any clarification...
correct answer is option iv):
As per DDM price today = present value of future cash flow. Which mean present value of future dividend till super growth period + present value of terminal value. Terminal value is computed using below formula=
expected dividend next year / (required rate - growth rate).
therefore correct answer is option IV)
stion 4 0 When Equity Cost of Capital > Return on New Investment, the corresponding growth...
QUESTION 4 When Equity Cost of Capital > Return on New Investment, the corresponding growth opportunity adds value to the firm. In the dividend-discount model, the discount rate is the weighted average cost of capital. Which one(s) of the following statements is INCORRECTTill Assuming a constant growth of dividend per share after Year N, then PN DION iv Assuming a constant growth of dividend per share after Year N, then Div Div2 Po - Tu ..02+...+ + DIEN OAL
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