Dividend growth model or capital asset pricing model

Reference no: EM1333132

Blackboard Discussion Exercise:

Do you feel that the Dividend Growth Model or the Capital Asset pricing Model is more accurate in determine the cost of a firm's common equity? Defend your answer. ( this can be 1 to 2 paragraphs)

Mini Case: After collaborating with people form your finance department, you have completed the analysis of purchasing five new delivery trucks. Using your firm's weighted average cost of capital, it appears that there is not a fleet of trucks that can be purchased that has a positive NPV. Your boss tells you that you should be using the cost of a truck loan (6%) rather than the weighted average cost of capital (14%) to analyze this purchase. By using 6%, even the purchase of Volvo trucks has a positive NPV. Using WACC you can not even justify the purchase of Yugo trucks. What should you tell your boss? How would your response change, if at all, if you were working for a not-for-profit organization?

Reference no: EM1333132

Questions Cloud

The dividend is hopefuly to make at a constant rate : The dividend is hopefuly to make at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?a) $2.20.

Explain the overall campaign : Write a summary that explain the overall campaign.

Different market issues : The Microsoft Anti-Trust case was interesting. Did the government go too far or not far enough in restricting Microsoft in that case?

What could be some of the strategies : How may data be managed to support a function (billing, human resources, accounting, finance, sales/marketing, training)?

Dividend growth model or capital asset pricing model : Do you feel that the Dividend Growth Model or the Capital Asset pricing Model is more accurate in determine the cost of a firm's common equity? Defend your answer.

Weakness of established leadership styles : Compare and contract leadership theories and determine the strengths and weakness of established leadership styles.

Explain how large a sales increase can the company achieve : Explain how large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate.

How to create a user interface : Note down the conversion is from wet liters to wet pints and from wet liters to wet gallons.

Question about capital asset pricing model : What are the critical assumptions in Capital Asset Pricing Model (CAPM)? How do these affect its validity as a way to estimate equity cost of capital?

User Account

All Pages