Answered step by step
Verified Expert Solution
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
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started