Question: One of the assumptions of the two stage growth model
One of the assumptions of the two stage growth model is that the dividends drop immediately from the high growth rate to the perpetual growth rate. What do you think about this assumption? What happens if this assumption is violated?
Answer to relevant QuestionsIn the chapter, we mentioned that many companies have been under pressure to declassify their boards of directors. Why would investors want a board to be declassified? What are the advantages of a classified board?Apocalyptica Corp. pays a constant $8.50 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, ...Janicex Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11 percent, and ...In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a ...A stock has had returns of 14 percent, 18 percent, 26 percent, −19 percent, 34 percent, and −9 percent over the last six years. What are the arithmetic and geometric returns for the stock?
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