Two well- known models of firm value are the dividend discount model and the discounted cash flow model. Under ideal conditions, each model gives the same result. In Example 2.2, assume that P. V. Ltd. pays no dividends over its life, until a liquidating dividend is paid at the end of year 2 consisting of its cash on hand at that time. Required Verify that the market value of P. V. Ltd. at time 0 based on the expected present value of its future dividend equals $ 260.33, equal to P. V.’ s market value based on expected future cash flows.
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