Tesla's website states the following: 'Tesla has never declared dividends on our common stock. We intend on retaining all future earnings to finance future growth and therefore, do not anticipate paying any cash dividends in the foreseeable future.'

The textbook 'Principles of Corporate Finance' by Brealey et al. states that 'the logic of discounted cash flow suggests PV(share of stock)= PV(expected future dividends per share).'

In the first nine months of 2020 the value of Tesla stock rose 390%.

Reconcile these three statements by:

a. Explaining the 'logic of discounted cash flow';

b. Describing how the discounted cash flow model converts into the constant dividend growth model; 

c. Analyzing how the constant dividend growth model converts into a model explaining the return on a stock when dividends are absent; 

d. Suggesting why the Tesla stock price rose so rapidly during the course of 2020. 

Answer rating: 100% (QA)

a The logic of discounted cash flow DCF is based on the principle that the value of an investment is determined by the present value of its expected f... View the full answer