Chapter12TheCostofCapital-CSUS.ppt

Constant Growth Dividend Model * P0 = = $30.50 1.14(1+.07) .11 – .07 What is the value of a share of common stock if the most recently paid dividend (D0) was $1.14 per share and dividends are expected to grow at a rate of 7%? Assume that you require a rate of return of 11% on this investment. P0 = = D0(1+g) ks – g D1 ks – g Valuing Total Stockholders’ Equity The Investor’s Cash Flow DCF Model Investor’s Cash Flow is the amount that is “free” to be distributed to debt holders, preferred stockholders and common stockholders. Cash remaining after accounting for expenses