Sample Essay on:
Using Dividend Growth Models for Estimating Cost of Equity in a Bank

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Essay / Research Paper Abstract

This 5 page paper looks at dividend growth models, including the Gordon Growth Model and the two stage dividend discount model, to assess the way that they may be used to assess the cost of capital for a bank. The bibliography cites 9 sources.

Page Count:

5 pages (~225 words per page)

File: TS14_TEbankDDM.rtf

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Unformatted sample text from the term paper:

discount model. Banks, like any other firm need to be able to calculate the cost of capital, and the use of a growth model can be beneficial. The basic premise is that the cost of equity can be calculated by looking at the amount that a share will make over a period of time. As equity is invested in order to gain a return the way that the share should be valued is to equate the capital value of the share with reference to the amount it will make for the shareholder which are either paid as dividends, or free cash flow to the shareholder, with this the stock value will be equal to the present value of the expected future returns. There have been some recent works to assess the role that taxes paid on the yield from the shares through the dividends have on the dividend growth, or the dividend discount models, the work that has been undertake appears to justify that tax can be a variable (Dhaliwal and Trezevant, 2003; 155), which makes this model one that is interesting but also indicates how, with the applications, there may be a range of variables. The research does indicate that were there are high taxes to be paid on the dividends then there may be an increase in the required return on equity in order to allow for the taxes (Dhaliwal and Trezevant, 2003; 155; Ayers et al, 2002; 933). Therefore, when looking at this model this should be remembered as a potential variable that can be applied to adjust the level of there are changes expected or implemented in terms of the taxation regime. There are different variants that can be used, some of which may be ...

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