Purchase Solution

Dividend Discount Model

Not what you're looking for?

Ask Custom Question

I would like to get some help with this problem . I have 4 more similar to it and I would like to get some guidance as to what I'm supposed to be doing here. Please provide all calculations and formulas used as well as explanations where possible. Information needed to complete this problem is provided in the attachments. However, there is on web site, which is provided, that must be used to complete the problem. This is an on-line course and basically self-taught. I would really appreciate any and all help that is provided. Your team of experts have kept me afloat over the past 7 months with there advise and expertise in several subjects.

Attachments
Purchase this Solution
Solution Summary

The solution explains the use of dividend discount model to calculate the stock price using the example of IBM

Solution Preview

What this question requirs you to do is to use the Constant Growth Model to find the stock price. Compare the price to the current market price and see why the two are different

1. Find an estimate of the risk-free rate of interest, krf.

The US 10 year treasury rate is 4.54% from Bloomberg ( found from the website given)

2. Download this IBM Stock Information document (.pdf file). Please note that the following information contained in this document must be used to complete the subsequent questions.
1. IBM's beta (à?) = 1.64
2. IBM's current annual dividend = $0.80 per share
3. IBM's 3-year dividend growth rate (g) = 8.20 %
4. Industry P/E = 23.2
5. IBM's EPS = $4.87

3. With the information you now have, use the CAPM to calculate IBM's required rate of return or ks.
Using CAPM, the required rate of return is given as
Ks = Risk Free Rate + ( Risk Premium ) X beta
Ks = 4.54 % + 7.5% X 1.64
Ks= ...

Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

View More Free Quizzes
Related BrainMass Solutions

  • The Dividend Discount Model

    105169 The Dividend Discount Model Given that dividend yields are at very low levels for US firms, what effect does that have on the applicability of the dividend discount model?

  • Dividend Discount Model - Value of Share

    375458 Dividend Discount Model - Value of Share Corporation A has just paid its annual dividend of $2.50 a share.

  • apply the dividend discount model:

    444261 apply the dividend discount model: LetÃ?¢â?¬â?¢s apply the dividend discount model: P = D1/ (r-g) A company pays a dividend today of $4, and this dividend is expected to grow each year by 4%. The discount rate is 10%.

  • Sundanci, INC.

    discount model.

  • The Dividend Discount Model and the CAPM

    /financial-dictionary/stock-valuation/dividend-discount-model-ddm-1510 This solution briefly discusses each of the three questions presented as related to the dividend discount model and the capital asset pricing model.

  • Dividend-Discount Model

    398716 Dividend-Discount Model Discuss the tradeoff between dividends and growth; elaborate on the use and limitations of the Dividend-Discount model. Dear Student, Tradeoff between dividends and growth.

  • CAPM APT and DDM

    Which is the best one to estimate the discount rate for Target Corp. Dividend growth model relates stock price, dividend, discount rate and growth rate. The model states that price = dividend/(discount rate - growth rate).

  • Dividend Discount Model

    - In year five (and thereafter) assume a growth rate of 2% per annum for the dividend. - Use a discount rate of 12% See attachment for solution. This solution uses the dividend discount model (DDM) to calculate the price of a common equity.

  • Constant-Growth Model

    125941 Constant-Growth Model.. Constant-Growth Model. Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5 percent per year indefinitely. 1.

  • Dividend discount model - value of Gillette stock

    The solution examines the dividend discount model to determine the value of Gillette Stock.

View More Related Solutions