Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

need explanation for why c is not correct Question 15: A mature firm is expected to have constant growth in the future. Its share price

need explanation for why c is not correct

image text in transcribed

Question 15: A mature firm is expected to have constant growth in the future. Its share price (P) can be calculated based on the dividend discount model (DDM) using its expected dividend next year which is paid annually and is expected to grow by Idividend foreve discounted by the levered cost of equity (re): dividend Po = TE - I dividend Also, it's market capitalisation of equity (E) equals its expected equity free cash flow next year (EFCF) which is paid annually and is expected to grow by gerce forever, discounted by the levered cost of equity (76) EFCF Eo = TE- GEFCF Define n as the number of shares and NetBuyBacks, as equity buybacks less raisings. Assu that buybacks are conducted at the fair market share price and that there is no tax advantag conducting buybacks over dividends. Which of the following statements about these perpetuity models is NOT correct? (a) EFCF dividend .n + NetBuyBacks (b) If NetBuyBacks 0 every year in the future, then I dividend GEFCF *(c) If NetBuyBacks > 0 every year in the future, then gdividend

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Teaching Public Budgeting And Finance

Authors: Meagan M. Jordan, Bruce D. McDonald III

1st Edition

1032146680, 978-1032146683

More Books

Students also viewed these Finance questions

Question

4. Identify cultural variations in communication style.

Answered: 1 week ago

Question

9. Understand the phenomenon of code switching and interlanguage.

Answered: 1 week ago

Question

8. Explain the difference between translation and interpretation.

Answered: 1 week ago