Question: This passage below require analysis and breakdown The dividend discount model and the discounted cash flow model differ in that the dividend discount model discounts
This passage below require analysis and breakdown
The dividend discount model and the discounted cash flow model differ in that the dividend discount model discounts future dividend payments rather than free cash flows. This means that the present value of stocks is the total sum of the present value of its future dividends. In the dividend discount model, it is assumed that a stock is worth nothing greater than what it will give investors in both current and future dividends (McClure, B., 2019). The Discounted Cash Flow Model suggests that minimal changes in input can create large value changes of an organization. This model is often used many times by start up companies to determine a variety of best/worst case scenarios over time. The dividend discount model should only be used if there is steady cash flow and it is important to acknowledge that the investment return is dependent upon investors purchasing higher priced shares. In the dividend discount model, dividends have to be sustainable to work and the taxes are based on the year they are incurred.
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