Escolar Documentos
Profissional Documentos
Cultura Documentos
Factoring
Accruals
Net Float
Debenture/Indenture
Residual Dividend Model
CAPM
Moral Hazard
Arbitrage
3 Pillars
5 Cs
4 Reasons for Cash
3 Measures of Cost of Equity
2 Types of Debt
Dividend Theories
WACC
Clientele Effect
Net Float
Adverse Selection
Atomistic
Computations:
Cash Conversion Cycle Chapter 16 Toolkit
Discounted Dividend Model
A procedure for valuing the price of a stock by using predicted dividends and
discounting them back to present value. The idea is that if the value obtained
from the DDM is higher than what the shares are currently trading at, then the
stock is undervalued.
DSO
Residual Dividend Model
The optimal distribution ratio for a firm is a function of four factors. (1) Investors' preferences for dividends
versus capital gains. (2) The firm's investment opportunities. (3) Its target capital structure. And (4), the
availability and cost of external capital.
The last three elements can be combined into the residual distribution model. Within the residual model, firms
must determine the optimal capital budget, determine the amount of equity needed to fund the capital budget
(based upon the target capital structure), use reinvested earnings to meet equity requirements whenever
possible, and make distributions to shareholders only if more earnings are available than are needed for
dividends. The residual model can be expressed as:
Distributions =
Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D = total market value of the firms financing (equity and
debt)
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
the amount of interest they are paying, minus the amount they have
saved in taxes as a result of their tax-deductible interest payments.
This is why the after-tax cost of debt is Rd (1 - corporate tax rate).