Question

9-6   Discuss the similarities and differences between the discounted dividend and corporate valuation models.

Answer 1

Similarities:

Both the discounted dividend and corporate valuation model helps to determine the value of share onwers interest (equity share capital) in a business.

Differences:
The approach through which valuation is done is completely different.

DDM:
Where as DDM more specific in its approach to calculate value per share.
DDM is based on the dividends the company pays its shareholders.

It's the present value of all the future dividends.

It's the most basic of absolute valuation models.

It's a closed form of valuation.

Corporate valuation:

It's important to know the value of share holders holding and business.

These value can be arrived using various parameters-
1. Value of operations.
2. Present value of growth opportunities.
3. Goodwill and brand value.
4. Assets in place.