- This topic has 3 replies, 2 voices, and was last updated 12 years ago by
.
-
Posts
-
Hi John, please when we value a company using DVM, must we always discount (all future dividends)our figures to year 0 term(pv) if the dividends lets says start from year 3. thank you.
Example: June 2013 exams question 4, option 1.
and June 2012 question 4(b)Yes. The market value is always the present value (now – time 0) of expected future dividends.
Usually (for an ex div value) we are looking at dividends from time 1 onwards, and if there is constant growth then we can simply use the formula. (Although you certainly are never expected to prove the formula, it is effectively calculating the present value of the dividends)
However if the dividends start from time 3 (or anything else) then we still need the present value now. You can still use the formula but it gives a future present value which you then need to discount back to the PV now.
Always 🙂
- You must be logged in to reply to this topic.