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dividend valuation model

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › dividend valuation model

  • This topic has 1 reply, 2 voices, and was last updated 2 months ago by John Moffat.
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  • March 31, 2022 at 6:10 pm #652444
    shaunak22
    • Topics: 195
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    • ☆☆☆

    using dividend VALAUTION model we get equity value of the company BUT if we use WACC instead of ke in dividends valuation model will the get total value of the company (Debt +equity)?

    April 1, 2022 at 7:33 am #652493
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49583
    • ☆☆☆☆☆

    Discounting the free cash flows to equity (i.e. the dividends) at the cost of equity (which is what the dividend valuation model is going) gives the MV of equity.

    Discounting the free cash flows to the firm (i.e. before interest) at the WACC gives the MV of the firm (equity plus debt).

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