Question

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

Answer 1

Similarities:
Both discount future cash flows

Differences:
1.
Discounted dividend model calculates stock price or equity value
Corporate valuation model calculates enterprise or firm's value

2.
Discounted dividend model uses cost of equity as discount rate for discounting future dividends to calculate the stock price today.
Corporate valuation model uses weighted average cost of capital as discount rate for discounting future free cash flows to claculate corporate value.

3.
Corporate valuation model can be used for valuing firms which dont pay dividends.
Discounted dividend model cannot be used in these cases.