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

The constant growth DCF model used for common stocks and the model used for perpetual preferred stock or other perpetuities both rely on projecting future cash flows and discounting them back to their present value. Therefore, the models are conceptually similar.

The Constant Growth DCF Model Used to Evaluate the Prices