The constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Question

Quizplus · Accepted Answer

Both the constant growth DCF model and the perpetuity model rely on the assumption of steady, perpetual cash flows, making them conceptually similar in their approach to determining fair value.

The Constant Growth DCF Model Used to Evaluate the Prices