Finance School of management The Constant-Growth-Rate Discounted Dividend model a Another implication of the constant growth rate DDM is that the stock price is expected to grow at the same rate as dividends P-P0(1+g)-P Price at Expected Expected Beginning Expected Dividend Rate of Price Year of rear Dividend Yield Increase 1 $10O SS5.00 10% 110 s.50 5% 10% $121 6.05 5% 10% uesTc 16
16 Finance School of Management The Constant-Growth-Rate, Discounted Dividend Model ❑ Another implication of the constant growth rate DDM is that the stock price is expected to grow at the same rate as dividends. 1 0 0 0 0 0 P P P g P (1 ) g P P − + − = =
Finance School of management Earning and Investment Opportunity o A second approach to DCF valuation focuses on future earnings and investment opportunities a Focusing on earnings and investment opportunities rather than dividend helps to concentrate the analyst's attention on the core business determinants of value a Consider an investor planning to take over the firm uesTc
17 Finance School of Management Earning and Investment Opportunity ❑ A second approach to DCF valuation focuses on future earnings and investment opportunities. ❑ Focusing on earnings and investment opportunities rather than dividend helps to concentrate the analyst's attention on the core business determinants of value. ❑ Consider an investor planning to take over the firm