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Title: Nike Inc
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Business |
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| Date: |
December 1, 2004 |
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4 / 1090 |
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Essay text:
While taking a decision for investing in any security if the desired rate of return is greater than the return calculated using the CAPM model then the investment should not be made.
Advantages of CAPM:
? This method avoids the unrealistic assumption of constant dividend growth
? It takes the risk into consideration and accordingly adjusts the cost of equity
Disadvantages of CAPM:
? The accuracy of estimate of cost of equity by this method is limited by the accuracy of the estimates of market return, risk free return and beta... Showed first 250 characters
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DDM uses the concept of discounting the future cash flows generated by the company. There are two ways by which the shareholders get their value:
a) Dividends received
b) Capital gain or loss due to appreciation or depreciation of market price
These cash flows are discounted to arrive at the value of the company... Showed next 250 characters
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