DDM is extensively used for the fundamental analysis of common stock The parameters to be estimated are: 1. Required rate of return 2. Expected growth rate
K is a function of nominal risk free rate plus market risk premium G is a product of the retention rate and the rate of return on equity
This technique attempts to determine the free cash flow that is available to stockholders after payment to all other capital suppliers To measure FCFE: Net income +depreciation expense -capital expenditures -change in working capital -principal debt repayments +new debt issues