A Synthesis of Equity Valuation Techniques and the Terminal Value Calculation for the Dividend Discount Model
32 Pages Posted: 5 Nov 1997
Date Written: June 1997
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.
JEL Classification: G12, M41
Suggested Citation: Suggested Citation