Fin630 session5 discussion question 1 with 2 response

Aug 12th, 2016
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Dividend Discount Model Dq1 Some people think that stock prices reflect the present value of future dividends. Does this approach make sense? How does the forecasting of growth rate on future cash flows affect this approach of valuation? Are there implications for interpreting P/ E ratios?

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week5Dividend Discount ModelDq1Some people think that stock prices reflect the present value of future dividends. Does this approachmake sense? How does the forecasting of growth rate on future cash flows affect this approach ofvaluation? Are there implications for interpreting P/ E ratios?Sol:I would include myself in the group that thinks stock prices reflect the present valueof future dividends. When investing in stock, the future cash flows received fromyour investment is in the form of dividends. Many, if not all investors, base theirstock selection on earnings potential, or l

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