CAPM Vs. DCF Models
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The paper discusses how for a firm that is expanding, it is difficult to establish a proper growth rate for the DCF, since, if past growth rates in earnings and dividends have been relatively stable, and if investors appear to be projecting a continuation of past trends, then the growth rate may be based on the firm's historic growth rate. The paper explains, however, that if the company's past growth has been abnormally high or low, either because of its own unique situation or because of economic fluctuations, then the growth rate has to be estimated in some other manner.
From the Paper:"More individuals own stock more than ever. Stock pricing is now expansive and is an important aspect of financial economics. A stock is generally considered over-valued if the price-earning ratio is high relative to the rate at which a company's earnings are likely to grow. The converse holds true for an under-valued stock. Because of the complexity and importance of valuing common stock, various techniques for accomplishing this task have been devised over time. The sections that follow will compare and contrast the CAPM and DCF models. CAPM is an equilibrium theory that relates the expected return of an..."
Cite this Comparison Essay:
CAPM Vs. DCF Models (2007, December 01) Retrieved July 27, 2021, from https://www.academon.com/comparison-essay/capm-vs-dcf-models-133670/
"CAPM Vs. DCF Models" 01 December 2007. Web. 27 July. 2021. <https://www.academon.com/comparison-essay/capm-vs-dcf-models-133670/>