Question

Describe the assumptions we need to make for the constant-growth dividend discount model.

Answer 1

Ans = Dividend are less volatile than other measures of cash flow (i.e Earning and free cash flow) for valuation.

- Some of assumption we need to make for valuation through dividend discount model are -

1. Company has a history of dividend payments and dividend policy are clear.

2. we assume company is a going concern and pay dividend regularly which will grow at a constant rate.

3. This model will give intrinsic value of stock, not the market price.