Weighted Average Cost of Capital

Instructor Special Notes

FIN370 Week 4 WACC and Corporate Investment Decisions Problem dividend discount model explanation

Good Morning Class,

A student recently asked me for more information about the dividend discount model.

To obtain a discounted value of the dividends, they have come up with what they term is the dividend discount model.

The formula or equation for this is:

Present Value of Future Dividends = Dividends Per Share / (Discount Rate - Dividend Growth Rate)

Here you can see where the PV of the Dividends has been "discounted" by the discount rate in the formula.

You can search the internet for "dividend discount model" and there are several very good videos explaining this.

Take a look and let me know what you find.

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