Dividend discount models and free cash flow to equity models

Assignment Help Financial Management

Reference no: EM131935539

a. Illustrate the primary difference between the dividend discount models and the free cash flow to equity models.

b. Which model provides a better estimation of valuing firms for takeovers.

c. Will the following firms be likely to have a higher value from the dividend discount model, a higher value from the FCFE model, or the same?

1. firm that pays out less in dividends than it has available in FCFE, but invests the balance in treasury bonds.

2. a firm that pays out, on average, its FCFE as dividends

3. firm that pays out more in dividends than it has available in FCFE, and then issues stock to cover the difference.

Reference no: EM131935539

Questions Cloud

Compute the current stock value : Compute the current stock value. Compute next year’s expected stock value, assuming growth is constant.

Demand of loanable funds tend to increase during expansions : why does the demand of loanable funds tend to increase during expansions? why does the supply of loanable funds tend to increase during expansions?

Federal reserve votes to raise interest rates : Explain what the Chairman plans to do. Show or describe the steps cause and effect between the Fed’s action and the ultimate rise of interest rates.

What is required return expected to be for stock : Assume you are interested in a stock that has a beta of .85. what is the required return expected to be for the stock?

Dividend discount models and free cash flow to equity models : Illustrate the primary difference between the dividend discount models and the free cash flow to equity models.

Decrease the length of firm cash cycle : All else the same, which of the following would decrease the length of a firm's cash cycle? Consider each in isolation of one another.

What would happen to both short term and long-term yields : Assume that the bank will purchase 10 year bonds and sell 1 year T- bills, what would happen to both short term and long-term yields?

Reject the project with the cash flows : Compute the Payback statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows

After one year and after you receive one coupon payment : Suppose that after one year and after you receive one coupon payment, you decide to sell your note.

User Account

All Pages