Stock Valuation Question
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The stock valuation approach discussed in the text uses discounted cash flows concepts to calculate the theoretical value of a stock. The most popular academic approach is the dividend growth model.
If a stock does not pay a dividend, this model cannot be used. What might be an alternative method or approach to valuing a stock if it does not pay a dividend? You may find doing some research might be helpful to answer this question.
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Solution Summary
The stock valuation approach discussed in the text uses discounted cash flows concepts to calculate the theoretical value of a stock. The most popular academic approach is the dividend growth model.
If a stock does not pay a dividend, this model cannot be used. What might be an alternative method or approach to valuing a stock if it does not pay a dividend? You may find doing some research might be helpful to answer this question.
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Basically, you'd have to find ways to assign values to the company's stock that aren't based on the payment of dividends. There are a few ways that you could do this, and while no one method will be comprehensive, each method that you devise for assigning value can be used together to form a basis for a company analysis. Certain ratios are oftentimes just as accurate as the dividend growth model in valuing a stock. If you use an earnings per share ratio, you will divide the market value per share / the earnings per share ...
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