A Synthesis of Equity Valuation Techniques and the Terminal Value Calculation for the Dividend Discount Model
Stephen H. Penman
Columbia University - Department of Accounting
This paper lays out alternative equity valuation models that involve forecasting for finite periods and shows how they are related to each other. It contrasts dividend discounting models, discounted cash flow modes, and "residual income" models based on accrual accounting. It shows that some models that are apparently different yield the same valuation. It gives the general form of the terminal value calculation in these models and shows how this calculation serves to correct errors in the model. It also shows that all models can be interpreted as providing a particular specification of the terminal value for the dividend discount model and in so doing provides the terminal value calculation for the dividend discount formula.
Number of Pages in PDF File: 32
JEL Classification: G12, M41working papers series
Date posted: November 5, 1997
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