Get Chapter 13 Dividend Discount Models Nyu Stern School Of Business Form

Dividend Discount Model = Intrinsic Value = Sum of Present Value of Dividends + Present Value of Stock Sale Price. This dividend discount model or DDM model price is the stock's intrinsic value. If the stock pays no dividends, then the expected future cash flow will be the sale price of the stock.

Two-Stage Dividend Discount Model. The two-stage DDM is a methodology used to value a dividend-paying stock and is based on the assumption of two primary stages of dividend growth: an initial period of higher growth and a subsequent period of lower, more stable growth.

The dividend discount model (DDM) is used by investors to measure the value of a stock. It is similar to the discounted cash flow (DFC) valuation method; the difference is that DDM focuses on dividends while the DCF focuses on cash flow. For the DCF, an investment is valued based on its future cash flows.

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company's stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value.

The conclusion is that DDM is practical. However, due to the instability of the dividend market, the result has a particular error. Therefore, the DCF model can be used instead. Furthermore, the DCF model can provide more detailed and long-term analysis, and the results obtained by DCF model are relatively reliable.

Three Stage DDM Model to determine the value of equity of a business with three growth stage. The first one will be a fast initial phase, then a slower transition phase and finally ends with a lower rate for the finite period.

Limitations of DDM, FCFF, and FCFE DDM is very sensitive to a dividend growth rate and assumes the dividend growth rate will not change. FCFF and FCFE are based purely on inputs and assumptions. It is difficult to use them for forecasting of a cyclical business.