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Discounted Cash Flow Valuation

In: Absence of Arbitrage Valuation

Author

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  • Paskalis Glabadanidis

Abstract

The simplest version of the dividend discount model is most applicable to mature companies with stable earnings and dividends growing at relatively low rates in line with the growth in aggregate economic output. In this case, we can apply the growing perpetuity formula to the dividend per share, DPS0, forecast to grow at the rate of g in perpetuity with r e as the required rate of return on equity. This leads to the following intrinsic value per share: 2.1 V 0 E = D P S 0 ( 1 + g ) r e − g ]]

Suggested Citation

  • Paskalis Glabadanidis, 2014. "Discounted Cash Flow Valuation," Palgrave Macmillan Books, in: Absence of Arbitrage Valuation, chapter 2, pages 15-27, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-1-137-37287-1_2
    DOI: 10.1057/9781137372871_2
    as

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