Please answer any of the unanswered parts, including the question "The Dividend Discount Model only applies when it is assumed that the __________________ of dividend payments will be _______________ forever." (fill in the blanks)
Fill in the answers and upload your complete file in the assignment on Canvas. What does IPO stand for? Initial Public Offering What government agency sets rules and regulations for companies that sell shares of stock to the public? Your answer should include BOTH the acronym and what those letters stand for. S.E.C. (Securities and Exchange Commission) What is the difference between Market Capitalization and Book Value of Equity? Market capitalization is the market value of all a company's common stock and book value is the accounting value of the claim stockholders have on a company's assets. $4,897,500.00 GDL currently sells for $39.18 per share and has 125,000 shares outstanding. What is the market capitalization of GDL? GDL sells for $20 per share. Over the last year, it reported EPS (earnings per share) of $1.75. What is GDL's PE ratio? $11.43 A high PE ratio means This could mean that a company's stock price is high compared to its earnings and that it may be overvalued A low PE ratio means This could mean that a company's stock price is low compared to its earnings and that it may be undervalued An amount of money paid regularly by a company to its stockholders out of the profits it earns What is a dividend? Suppose the goddess tells you that GDL will pay a dividend of $1.20 per share one-year from now and $1.45 per share two-years from now. She also tells you that the stock will sell for $38 two-years from now. If you want to make a return of 10% per year on an investment in GDL stock, what is the most you would pay for a share today? Hint: This is a PV problem. Q1. What is the basic formula for the Dividend Discount Model (DDM)? Identify what each term stands for. Value of Stock =D/Ir-g) D = expected dividend per share R = cost of capital equity G = dividend growth rate 02. The Dividend Discount Model only applies when it is assumed that the of dividend payments will be forever. Q3. GDL just paid a dividend of $1.25 per share. You expect dividends to grow at a constant rate of 4% per year for the foreseeable future. You require a return of 1296 to invest in GDL. How much would you pay for GDL today? Answer by filling in the table below: Do D P. Q4. GDL just paid a dividend of $0.58 per share. You expect dividends to grow at a constant rate of 6% per year for the foreseeable future. You require a return of 15% to invest in GDL. How much would you pay for GDL today? Answer by filling in the table below: D Di r Po Q5. GDL just paid a dividend of $1.25 per share. You expect dividends to grow at a constant rate of 4% per year for the foreseeable future. You require a return of 12% to invest in GDL. The price today is $16.25. What do you expect the price to be next year? Answer by filling in the table below: Du D P. P. Q6. In the problem above, suppose you buy the share today for Po. One year later you collect the dividend and then sell the share for P. What was you rate of return Fy-Money you have at the end on this investment? Hint: r = -1= PV-Cost of the investment at the beginning - 1. Answer by filling in the following table: FV=money at the end PV=cost at beginning r
