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How important is it to estimate a company value using the present value of future dividends?

How important is it to estimate a company value using the present value of future dividends?

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Answer #1

The estimation of company value using dividend discount model is important because share price should include all future payments to its shareholders. The present value should include all payments to investors and dividends are a form of payment to investors. The discount rate can be cost of equity . This helps in finding the intrinsic value of firm and in judging whether they are overvalued or undervalued in the stock market.

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