Give an example of and discuss a stock that has temporary, supernormal growth where it would be appropriate (necessary) to use the modified DDM.
Answer to relevant QuestionsUnder what conditions will it be ideal to use one or several of the relative valuation ratios to evaluate a stock?The preferred stock of the Clarence Radiology Company has a par value of $100 and a $9 dividend rate. You require an 11 percent rate of return on this stock. What is the maximum price you would pay for it? Would you buy it ...What P/E ratio would you apply if you learned that SDC had decided to increase its payout to 50 percent? The current rate of inflation is 3 percent, and long-term Treasury bonds are yielding 7 percent. You estimate that the rate of inflation will increase to 6 percent. What do you expect to happen to long-term bond yields? ...You are told that nominal GDP will increase by about 10 percent next year. Using Exhibit and the regression equation, what increase would you expect in corporate sales?
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