--%>
Assignment Help - homework help

Illustrates the Gordon and Shapiro formula

What is the importance and the utility of the given formula:

Ke = DIV(1+g)/P + g?

E

Expert

Verified

The given expression Ke = DIV(1+g)/P + g arrives from the Gordon and Shapiro formula to value shares as: P = DIV(1+g)/(Ke–g). In such formulas, P and DIV are identified and Ke and g are not identified. Some people take like g as expected growth of dividends the average of expectations of analysts, and after that they compute Ke (Ke computed in such way is usually termed as implicit).

But Ke computed in this way is just one of several that can be computed. The formula permits us to acquire pairs (Ke, g) which satisfy the equation.

   Related Questions in Corporate Finance

  • Q : Explain the definition of WACC An

    An investment bank computed my WACC. The report is as: “the definition of the WACC is defined as WACC = RF + βu (RM – RF); here RF being the risk-free rate and βu the unleveraged beta and RM the market risk rate.” It is differ from what we

    		•
  • Q : Earnings management What do you mean by

    What do you mean by Earnings management and what are their actions and activities?

    		•
  • Q : Explain Cost of capital aspect Cost of

    Cost of capital aspect: Estimation of WCR is beneficial from the point of view of cost of capital too. A sound working capital position is beneficial from the point of view of both owners and lenders of the company. A sufficiently positive position me

    		•
  • Q : Markets are expected to be Volatile

    When Markets are expected to be Volatile: For the bear and bull strategy to yield gains, it is essential that the trader takes a view on the direction of the market i.e. either bearish or bullish, and accordingly implement the strategic choice. More o

    		•
  • Q : Compute a company's cost of capital in

    How can we compute a company's cost of capital in emerging nations, particularly when there is no state bond that we could take as a reference?

    		•
  • Q : Explain any indisputable model for

    Is there any indisputable model for valuing the brand of a company?

    		•
  • Q : Problem on Stock per share value ABC

    ABC Company plans to buy back 1 million shares of its own stock from its cash reserves at $50 a share. This will raise the bankruptcy costs by $10 million, and the debt/assets ratio from 35% to 40%. The income tax rate of the company is 30%. Determine the value of the

    		•
  • Q : Capital Structure Case Study 1 You work

    Case Study 1 You work in Walt Disney Company's corporate finance and treasury department and have just been assigned to the team estimating later today. You quickly realize that the information you need is readily available online. 1) Go to http://finance.yahoo.com. under " Market Summary," you

    		•
  • Q : Explain method to analyze and to value

    Are there any methods to analyze and to value seasonal businesses?

    		•
  • Q : Cost of Equity AB Corporation has 16%

    AB Corporation has 16% cost of equity, 35% tax rate, and debt-to-equity ratio of 30%. XY Corporation has 30% tax rate and debt-to-equity ratio of 40%. Both AB and XY are in the same business of selling automotive parts. If the riskless rate is 4% and the expected retu

    		•