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In qs 3 part b can u explain what exactly market capitalization tells about …
1)in case of chithurst market cap is higher than valuation under dividend valuation …how lower cost of equity indicates it a more stable investment ..also lower market cap as compared to other 2 companies and smaller increase is share price suggests that investors have high expectations of long term growth from Earham and iping co …i cannot exactly understand these points please explain2)Moreover in eartham co ..market cap is closer to the dividend valuation of 1 year growth rate what does this indicates and increase in share price suggests shareholders have confidence that the company will sustain its profit growth and hence dividend growth however the cost of equity is higher so how these relate please explain
What does they mean about dividend growth of the last 2 years given in earham co
You will know from my free lectures that the market value is based on shareholders future expectations of growth.
The value given by the dividend valuation model is assuming that shareholders are expecting the growth to be the same as it was in the past. If that is what they are expecting then the market value would be the same as that given by the dividend valuation model.
The fact that the market value is higher must mean that shareholders are expecting the growth to be higher in the future.
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