A GENERALIZED DISCOUNTED CASH FLOW MODEL TO COMPUTE STOCK PRICE
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The discounted cash flow method is a commonly-used tool to value security prices. For stock valuation, analysts usually assume companies will pay dividends in a certain pattern. Based on these assumptions, three models were developed to compute stock prices, and they are introduced in most textbooks offinancial management. These models, particularly the different growth model, have several limitations. Not only are they cumbersome and error-prone, but they also take too many steps to compute th estock price. These models could be very time-consuming, particularly when the first stage is long. To remedy these problems, a simpler and more general model is developeddebt level when the adjustment requires an increase in debt level according to the target adjustment model.
Abstract
The discounted cash flow method is a commonly-used tool to value security prices. For stock valuation, analysts usually assume companies will pay dividends in a certain pattern. Based on these assumptions, three models were developed to compute stock prices, and they are introduced in most textbooks offinancial management. These models, particularly the different growth model, have several limitations. Not only are they cumbersome and error-prone, but they also take too many steps to compute th estock price. These models could be very time-consuming, particularly when the first stage is long. To remedy these problems, a simpler and more general model is developeddebt level when the adjustment requires an increase in debt level according to the target adjustment model.