Compute the expected long-term total return

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The constant-growth dividend discount model can be used both for the valuation of companies and for the estimation of the long-term total return of a stock.

Assume: IDR 7500 price of a stock today, 10% expected growth rate of dividends and IDR 1000 annual dividend one year forward.

a. Compute the expected long-term total return on the stock using the constant-growth dividend discount model.

b. Briefly discuss three disadvantages of the constant-growth dividend discount model in its application to investment analysis.

c. Identify three alternative methods to the dividend discount model for the valuation of companies.

Reference no: EM132896694

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