Financial management bilingual coursework English title1：Chapter 2 P35 Q5Book Values versus Market Values Understand accounting rules it is possible for a company’s liabilities to exceed its assets

erstanding Stock Valuation

The dividend growth model is one of the most commonly used methods for valuing stocks. It assumes that the value of a stock is equal to the present value of all future dividends it will pay. The model has two variations: the constant growth model and the multiple growth model. Which model is most appropriate for a company depends on the company’s dividend history and growth prospects.

a. What are the key assumptions of the dividend growth model?

b. What are the advantages and disadvantages of using the dividend growth model to value stocks?

c. How does the dividend growth rate affect the value of a stock? What happens to the value of a stock if the dividend growth rate increases or decreases?

d. How do changes in the required rate of return affect the value of a stock? What happens to the value of a stock if the required rate of return increases or decreases