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The present value of stock can also be found using the Discounted Dividend Model. The Dividend Discount Model uses the present value of the stock, the expected future dividends, and the growth rate.

Click here to download the DDM template

This model is similar to the Constant Growth Model accept it discounts the dividends at the expected return instead of discounting the free cash flows at the weighted average cost of capital.

 

FAQs

1. What is the dividend discount model?

The dividend discount model is a model that uses the present value of the stock, the expected future dividends, and the growth rate.

2. How is the dividend discount model calculated?

The dividend discount model is calculated by using the present value of the stock, the expected future dividends, and the growth rate.

3. What are the types of dividend discount models?

There are three types of dividend discount models: the constant growth model, the exponential decay model, and the geometric average model.

4. How can investors use the dividend discount model?

Investors can use the dividend discount model to find the present value of a stock.

5. What are the drawbacks of the dividend discount model?

The dividend discount model is not as accurate as other models, such as the constant growth model. Additionally, it does not take into account taxes and dividends are not always paid out in cash.

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