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Equity Valuation
Dividend Discount Model-One year and Multi-year
Submitted to:
Submitted by:
Amargo, Angelique
Olgado, Aedrian
Domingo, Jairus
Urbano, Jhimbo
Salentes, Leo
Ramos, Aaron
(Contributions at the last page)
The dividend discount model (DDM) is a method of valuing a company's stock price based on
the theory that its stock is worth the sum of all of its future dividend payments, discounted back
to their present value.
This model values common stock as the sum of the discounted Present Values of its estimated
cash flows. The model uses and estimates all future cash flows arising during the holding period.
The model treats the calculation of PV as if the equity was a fixed income instrument and the
equation looks as follows.
The dividend discount model (DDM) is a procedure for valuing a stock's price
by discounting predicted dividends to the present value.
If the value obtained from the DDM is higher than the current trading price of shares, then the
stock is undervalued.
k = Rate
Formula 1.1
Answer:
$8
Value of Newco's preferred stock = ( ) = $80
.10
Keeping this in mind, we can calculate the value of the common stock as follows:
Formula 1.2
Answer:
Formula 1.3
Answer:
Formula 1.4
Answer: