The dividend discount model is based on the theory that the price of a share should be equal to the present value of the future dividend payments. The dividend discount model is widely used as a method to value stocks and therefore companies. The dividend discount model is also referred as dividend valuation model, Gordon’s Growth Model or dividend growth model. Dividend Discount Model Formu... »
The Accounting Rate of Return method is one of the most widely used techniques for investment appraisals and capital budgeting decisions. The accounting rate of return provides you with the return of the project which should be compared with the cost of raising capital to finance this project. In terms of reaching a decision, a simple method is to accept any project that has an accounting rate of ... »
It is easier to start with the definition of the break-even analysis or to be more precise with the break-even point. The break-even point is the point where the total contribution of the sales equal to the fixed costs. In other words, the break-even point is the point where the total revenue less the variable costs from the sales made equal to the total fixed costs. Break-even analysis is the ana... »
The Adjusted Present Value approach is a way to determine whether raising debt to undertake a specific project will add value or in other words if it will result in positive cash flows. Raising debt will generally have two effects. The first effect is that the company will pay less tax as the interest charges is a tax allowable expense (the “tax shield”). The second effect is the incre... »