Theoretical stock price using dividend discount model

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Reference no: EM132903206

For the company ExxonMobil answer the following questions. Assume a discount rate for all cash flows of r=2.5% nominal annual.

1. The current amount of dividends paid by the company is $0.87/share Based on the dividend amount, calculate the theoretical stock price using the dividend discount model, assuming that the dividend remains constant forever. (Pay attention to the number of dividend payments per year for your company)

2. Due to the Coronavirus some companies might not be able to pay the full amount of the dividend in the future. Using the dividend discount model calculate the stock price under the assumption that for the next 10 years the company will pay NO dividends at all and after that resume paying the same dividend as today for all future periods.

3. Similarly, using the dividend discount model calculate the stock price under the assumption the dividends will fall by 5% every year from the current level for the next 5 years and then remain constant at that level for all future periods.

4. Explain the difference between the NPV and the IRR method when making in vestment decisions. Which method should be preferred when choosing between several projects? And Why?

Reference no: EM132903206

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