Assume an investor uses the constant-growth DVM to value a share
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Assume an investor uses the constant-growth DVM to value a share
Assume an investor uses the constant-growth DVM to value a share. Listed below are various situations that could affect the computed value of a share. Look at each one of these individually and indicate whether it would cause the computed value of a share to go up, down or stay the same. Briefly explain your answers.
a. Dividend payout ratio goes up
b. Share’s beta rises
c. Equity multiplier goes down
d. Government bond rates fall
e. Net profit margin goes up
f. Total asset turnover falls
g. Market return increases
Assume throughout that the current dividend (D0) remains the same and that all other variables in the model are unchanged.
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