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Explain discounted dividend and corporate valuation models

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Although there are similarities and differences between the discounted dividend and corporate valuation models..

Similarities:

Both the discounted dividend and corporate valuation model helps to determine the value of share owners interest (equity share capital) in a business. 

Differences:

The approach through which valuation is done is completely different. The discounted dividend model calculates the firm's stock price as the present value of the expected future dividends at the firm's required rate of return on equity, while the corporate valuation model calculates the firm's stock price as the present value of the expected free cash flows at the firm's weighted average.

Is it important for companies to follow each model or do you think one is more important than the other?

Reference no: EM133075485

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