Dividend valuation model - part 2

In this lesson

1. 0:00 Dividend valuation model with constant growth
2. 1:02 Calculating cost of equity using CAPM
3. 1:36 Applying the dividend valuation formula
4. 2:48 Valuing companies with zero growth dividends
5. 3:59 Working through the zero growth scenario

About this lesson

You'll work through the formula step-by-step to calculate share price and company valuation, then discover how to adapt the technique when growth is zero or when you're working with total dividends rather than per-share figures. By the end, you'll be confident handling the variations you're likely to encounter in AFM and other advanced papers that test valuation techniques. The first worked example walks you through valuing Mini Co using the dividend valuation model formula. You'll calculate the dividend in one year's time, use the CAPM formula to find the cost of equity (combining the risk-free rate, market return, and beta), then apply the core formula to find share price before scaling up to company value. The second example shows you that the technique remains valid even when growth is zero—you simply set g to zero—and that you can work with total dividends to arrive directly at market capitalisation. These practical variations reflect real exam scenarios where the numbers or information given might differ slightly from the textbook example, so understanding the underlying logic helps you adapt confidently under pressure.

Duration: 5m