EC260 Lecture Notes - Lecture 3: Kraft Dinner, Substitute Good, Profit Margin
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The dividend discount model: the constant perpetual growth. Assuming that the dividends will grow forever at a constant growth rate g. Be careful we are using dividend instead of profit in this example. In mid-2003, the dividend paid by the utility company, Using d(0)=. 40, k = 6. 5%, and g = 1. 5%, calculate an estimated value for aep. Note: the actual mid-2003 stock price of aep was . 88. The dividend discount model: estimating the growth rate. The growth rate in dividends (g) can be estimated in a number of ways. Using industry median or average growth rate. Return on equity (roe) = net income / equity (robert. Higgins: target debt/equity, dividend payout ratio, profit margin. Payout ratio = proportion of earnings paid out as dividends. Suppose the kiwi company paid the following dividends: The spreadsheet below shows how to estimate historical average growth rates, using arithmetic and geometric averages (less sensitive to outliers).
