CIFRA

AL - JAHR
Al-KOWARIZMI

CLASSICAL FINANCE
DIVIDEND GROWTH MODEL
(DGM)

A
100

L
20

8 shares, so each
Share is worth
$10

=E
= 80

2:1 SHARE SPLIT

A
100

L
20

16 shares, so each
share is worth
$5

=E
= 80

AS THE CORPORATION GROWS

A
200

L
40

16 shares, so each
Share is worth
$10

=E
= 160

LO1

$10
Stock

$10
Book Value/Share

$1
Dividend

LO1

$???
Stock

$???
Book Value/share

$0.50
Dividend

DETERMINANTS OF SHARE PRICES

Supply &
Demand

Company
Earnings

Company
Growth

Economy

Fear and
greed

Oil/Gold
Hype

Stock
price

Inflation

Civil unrest

Chart
Patterns

Company
News

Stock
Momentum
World
News

Analysts
Expectations
Industry
Stocks

LO1

Dividend Growth Model

Dividends are expected to grow at a constant percent
per period.

D 0 (1 g)
D1
P0

R -g
R -g

LO1

Using the Constant DGM to Find R

D 0 (1 g)
D1
P0

R -g
R -g
rearrange and solve for R
D 0 (1 g)
D1
R
g
g
P0
P0

LO1