The owners of Sitty Inc need a return of 12% pa. The current performance of the firm leads to the belief that a dividend of sh. 5/= would be paid and after the year the price of the share would be Sh. 20 If the current price of the share is Sh. 22/= do you think the share is worth buying? How do you justify that the positive return could be generated despite the price falling to Sh.20 after one year? What maximum price do you think the Investors should pay for shares of ABC Limited
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
The owners of Sitty Inc need a return of 12% pa. The current performance of the firm leads to the belief that a dividend of sh. 5/= would be paid and after the year the price of the share would be Sh. 20
- If the current price of the share is Sh. 22/= do you think the share is worth buying?
- How do you justify that the positive return could be generated despite the price falling to Sh.20 after one year?
- What maximum price do you think the Investors should pay for shares of ABC Limited
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