This course focuses on tools and techniques used in modern financial management. Material in the course has an applied focus and is designed to provide students with the knowledge and skills required for understanding, exploring and analysing financial management issues. The course draws upon topical material in order to contextualise theoretical discussion, and present students with examples in practice.
这是一份anu澳大利亚国立大学FINM1000的成功案例
Throughout the late 1950 ‘s, Myron J. Gordon (initially working with Ezra Shapiro) formalised the impact of distribution policies and their associated returns on current share price using the derivation of a constant growth formula, the mathematics for which are fully explained in the CVT text.
Required:
- Present a mathematical summary of the Gordon Growth Model under conditions of certainty.
- Comment on its hypothetical implications for corporate management seeking to maximise shareholder wealth.
These questions not only provide an opportunity to test your understanding of the companion text, but also to practise your written skills and ability to editorialise source material.
- The Gordon Model
According to Gordon (1962) movements in ex-div share price $\left(\mathrm{P}_{2}\right.$ ) under conditions of certainty relate to the profitability of corporate investment and not dividend policy.
Using Gordon’s original notation and our Equation numbering from $C V T$ (Chapter Three) where $\mathrm{K}{e}$ represents the equity capitalisation rate; $E{1}$ equals next year’s post-tax earnings; $b$ is the proportion retained; (1-b) $E_{1}$ is next year’s dividend; $r$ is the return on reinvestment and r.b equals the constant annual growth in dividends:
(16) $\quad \mathrm{P}{0}=(1-\mathrm{b}) \mathrm{E}{1} / \mathrm{K}{\varepsilon}-\mathrm{rb} \quad$ subject to the proviso that $\mathrm{K}{\varepsilon}>$ r.b for share price to be finite.
You will also recall that in many Finance texts today, the equation’s notation is simplified with $D_{1}$ and g representing the dividend term and growth rate, subject to the constraint that $\mathrm{K}{\varepsilon}>\mathrm{g}$ (17) $\mathrm{P}{\mathrm{b}}=\mathrm{D}{1} / \mathrm{K}{\mathrm{c}}-\mathrm{g}$
- The Implications
In a world of certainty, Gordon’s analysis of share price behaviour confirms the importance of Fisher’s relationship between a company’s return on reinvestment $(\mathrm{r})$ and its shareholders’ opportunity cost of capital rate $(\mathrm{K})$ ).
FINM2001 COURSE NOTES ：
Moving into a world of uncertainty, Gordon (op cit) explains why rational-risk averse investors are no longer indifferent to managerial decisions to pay a dividend or reinvest earnings on their behalf, which therefore impacts on share price.
Required:
- Present a mathematical summary of the difference between the Gordon Growth Model under conditions of certainty and uncertainty.
- Comment on its hypothetical implications for corporate management seeking to maximise shareholder wealth.
An Indicative Outline Solution
Again, these questions provide opportunities to test your understanding of the companion text and practise your written and editorial skills. - The Gordon Model and Uncertainty
According to Gordon (ibid) movements in share price under conditions of uncertainty relate to dividend policy, rather than investment policy and the profitability of corporate investment. He begins with the basic mathematical growth model:
(16) $\mathrm{P}{0}=(1-\mathrm{b}) \mathrm{E}{1} / \mathrm{K}{c}-\mathrm{rb} \quad$ subject to the proviso that $\mathrm{K}{\varepsilon}>$ r.b for share price to be finite.
This again simplifies to:
(17) $\mathrm{P}{0}=\mathrm{D}{1} / \mathrm{K}{c}-\mathrm{g}$ subject to the constraint that $\mathrm{K}{c}>\mathrm{g}$
But now, the overall shareholder return (equity capitalisation rate) is no longer a constant but a function of the timing and size of the dividend payout. Moreover, an increase in the retention ratio also results in a further rise in the periodic capitalisation rate. Expressed mathematically:
$$
\mathrm{K}{\varepsilon}=f\left(\mathrm{~K}{\mathrm{el}}<\mathrm{K}{e 2}<\ldots \mathrm{K}{\mathrm{en}}\right)
$$ - The Implications
According to Gordon’s uncertainty hypothesis, rational, risk averse investors adopt a “bird in the hand” philosophy to compensate for the non-payment of future dividends.
They prefer dividends now, rather than later, even if retentions are more profitable than distributions (i.e. $r>\mathrm{K}{\mathrm{e}}$ ). They prefer high dividends to low dividends period by period. (i.e. $\mathrm{D}{1}>\mathrm{D}{2}$ ). . Near dividends and higher payouts are discounted at a lower rate ( $\mathrm{K}{\mathrm{ct}}$ now dated) ,
Thus, investors require a higher overall average return on equity $\left(\mathrm{K}_{c}\right.$ ) from firms that retain a higher proportion of earnings with obvious implications for share price. It will fall.