Dividend Discount Model

The Theory of Investment Value - Theory 1 While Williams did not originate the idea of present value, money.com/artandpap/I%20Present%20Value.doc he substantiated the concept of Valuation using discounted cash flows|discounted cash flow valuation and is generally regarded as having developed the basis for the dividend discount model (DDM). Promo.pdf, physics.org/Library/Articles3/scienceandfinance/science.htm Through his approach to modelling and forecasting cash flows—which he called “algebraic budgeting”—Williams was also a pioneer of the Pro forma#Business|pro forma modeling of financial statements.[ access/min061a.htm] Here, Williams (Theory, ch

Residual income valuation - Comparison with other valuation methods 1 As can be seen, the residual income valuation formula is similar to the dividend discount model (DDM) (and to other discounted cash flow (DCF) valuation models), substituting future residual earnings for dividend (or free cash) payments (and the cost of equity for the weighted average cost of capital).

Cost of capital - Expected return 1 The expected return (or required rate of return for investors) can be calculated with the Dividend discount model|dividend capitalization model, which is

Dividend discount model 1 [ amental/04/ asp Investopedia – Digging Into The Dividend Discount Model] In other words, it is used to value stocks based on the net present value of the future dividends

T-model 1 Still, it has advantages over commonly used fundamental valuation techniques such as price–earnings or the simplified dividend discount model: it is mathematically complete, and each connection between company fundamentals and stock performance is explicit, so that the user can see where simplifying assumptions have been made.

Perpetuities - Real-life examples 1 However if the future dividends represent a perpetuity increasing at 5.00% per year, then the dividend discount model, in effect, subtracts 5.00% off the discount rate of 12.50% for 7.50% implying that the price per dollar of income is $

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