Suppose Mr. Stewart just bought a share of PowerWind Co., a renewable energy startup. PowerWind...
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Suppose Mr. Stewart just bought a share of PowerWind Co., a renewable energy startup. PowerWind promises to pay Mr. Stewart $20 in dividends for one year and then the firm will shut down. Suppose that the liquidation value of the share is $4, and the rate of time preference is 5%. Then, according to the single-period dividend discount model, the present value of the cash payment received by Mr. Stewart in one year would be ($19.05, $23.05, $3.81, $22.86) , which means that the market price of the share of stock is ($19.05, $23.05, $3.81, $22.86)
Which of the following is the formula used in the Gordon growth model?
PVt=sum(DIVt+1(1+r)t)PVt=sumDIVt+11+rt, where rr is the rate of time preference
PVt=DIVt+1rgPVt=DIVt+1rg, where gg is the rate at which the dividend is expected to grow and rr is the rate of time preference
PVt=DIVt-1r+gPVt=DIVt-1r+g, where gg is the rate at which the dividend is expected to grow and rr is the rate of time preference
PVt=DIVt+1+(rg)PVt=DIVt+1+rg, where gg is the rate at which the dividend is expected to grow and rr is the rate of time preference
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