econ 134 (ECON134)

[6 pts] 1. Describe advantages of the two-stage FCFE model over the two-stage DDM model. [6 pts] 2. At Litchfield Chemical Corp. (LCC), a director of the company said that the use of dividend discount models by investors is “proof” that the higher the dividend, the higher the stock price. a. Using a constant-growth dividend discount model as a basis of reference, evaluate the director’s statement. b. explain how an increase in dividend payout would affect each of the following (holdin...