Скачать или смотреть How to solve 2-stage DDM equity valuation questions

This video delves into equity valuation with a focus on the Dividend Discount Model (DDM) for common stock. It's designed to help finance students master problem-solving strategies for DDM questions using timelines and clear formulas. The video covers a two-part question involving a company's dividend policy: an initial phase of declining dividends over three years followed by a perpetuity of constant dividends. Key insights include understanding when to use growing annuity versus perpetuity formulas and the importance of visualizing problems with timelines.

You'll learn how to calculate the present value of dividends for both phases and determine the market value of a stock. Practical tips and avoiding common errors, such as misapplying perpetuity formulas for finite periods, are emphasized. This comprehensive walkthrough ensures you're equipped to tackle similar equity valuation problems with confidence. Perfect for finance students taking courses like FINA 385 or FINA 395, this video breaks down complex concepts into manageable steps.

Timestamp chapters:
0:00 – Introduction: Equity valuation and the importance of timelines
0:39 – Problem overview: Dividend Discount Model (DDM) and key formulas
1:17 – Phase 1: Dividend declining by 10% annually for three years
3:33 – Understanding 𝐷 its role in setting up timelines
4:37 – Calculating dividends
6:16 – Phase 2: Constant dividends perpetually from year four onward
8:04 – Explaining perpetuities and key differences from annuities
9:13 – Identifying appropriate formulas for each phase
10:42 – Solving Phase 1: Applying the growing annuity formula
12:26 – Solving Phase 2: Applying the constant dividend perpetuity formula
15:11 – Discounting perpetuity value back to present
20:04 – Final step: Summing the values to find the stock’s market price
21:52 – Recap: Key takeaways and avoiding common exam pitfalls
22:24 – Closing: Confidence in solving equity valuation problems