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Essay / Research Paper Abstract
This 5 page paper answers questions posed by the student concerning the dividend discount model, what it is, how it works for both the stable and the two stage version of the model, why dividends rather than earnings per share are used and other related questions. The bibliography cites 1 source.
Page Count:
5 pages (~225 words per page)
File: TS14_TEdivdm1.rtf
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Unformatted sample text from the term paper:
used in the dividend discount model, which is a more conservative measure of stock values. The rationale behind this model is that the value of a share should be
calculated by reference to the current value of future dividends. The idea is that the real value is not in the speculation of earnings and the way that the market
behaved, that the best way to measure the value of a stock should be by looking at the money it will produce. This is likely to produce less irrational returns
than those that create the large swings in stock valuations on the stock market. This is therefore a conservative valuing tool. The model is best used when there is a
stock that is making regular dividend payments, but it can be used for other companies as theoretically retained earnings should eventually become dividends. This gives us a model that values
stock only in terms of what is obtained from it. There are two different models that can be used, here we are using the stable model. For this we
need to calculate the input figures. The first figure is the dividends that are expected within one year we will call this DPS(1). The second is the rate of return
that is required for the investment, this is referred to as Ks. This is calculated by taking the risk free rate and adding the market premium rate, and then multiplying
the answer by the beta. The final input is the assumed growth rate for the dividends (g), this is often assumed as equal to the long term growth rate in
the economy calculated by adding inflation to the real rate of growth in the GDP, here we have used a growth rate of 19%, however the student may wih to
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