This assignment delves into the comparison of three primary stock valuation models: the Dividend Discount Model (DDM), the Discounted Cash Flow (DCF) model, and the Residual Income model. The DDM assesses stock value based on expected dividends, while the DCF model forecasts and discounts future cash flows to determine present value. The Residual Income model evaluates equity by considering earnings exceeding a minimum rate of return. The assignment analyzes the strengths and weaknesses of each model, including the DDM's reliance on consistent dividends, the DCF's sensitivity to assumptions, and the Residual Income model's dependence on financial statement forecasts. The solution also includes practical calculations to estimate the value of operations, total corporate value, intrinsic equity value, and stock price per share using the DCF model, providing a comprehensive understanding of these valuation techniques. The assignment further calculates the horizon value and current value of operations, along with the value of equity per share.
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