Homework Answers
Answer - Option b.
Yes DDM can calculate the value of a company's stock by making an educated guess of the future dividends and applying a margin of error.
Explanation:-
The companies paying no dividends do command positive market prices for their shares since the price today depends on the future expectation of dividends. The non payment of dividend will not last forever. Eventually these companies may start paying dividends one day. Shareholders hold share of such companies because they expect that in the final analysis dividends will be paid or they will be able to realize capital gains. Thus the dividend discount model is a valid share valuation model even for those companies that are presently not paying dividends.
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Can the dividend discount method ever be used to value a non dividend paying stock and...
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