A Synthesis of Equity Valuation Techniques and the Terminal Value Calculation for the Dividend Discount Model

32 Pages Posted: 5 Nov 1997

See all articles by Stephen H. Penman

Stephen H. Penman

Columbia Business School - Department of Accounting

Date Written: June 1997

Abstract

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

Penman, Stephen H., A Synthesis of Equity Valuation Techniques and the Terminal Value Calculation for the Dividend Discount Model (June 1997). Available at SSRN: https://ssrn.com/abstract=38720 or http://dx.doi.org/10.2139/ssrn.38720

Stephen H. Penman (Contact Author)

Columbia Business School - Department of Accounting ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9151 (Phone)
212-316-9219 (Fax)

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