From the course: Financial Accounting Part 2

Unlock the full course today

Join today to access over 25,200 courses taught by industry experts.

McDonald's: Dividend-based valuation

McDonald's: Dividend-based valuation

From the course: Financial Accounting Part 2

Start my 1-month free trial Buy for my team

McDonald's: Dividend-based valuation

“

- Let's use two dividend models to estimate the value of McDonald's. First, the constant future dividends model. In this simple model, the business is valued as if the current cash dividend amount is a fixed payment to be received each year forever. Valuation in this case is easy. The future dividend stream is a perpetuity, an infinite series of cash flows of the same amount. The appropriate valuation formula is as follows. The estimated price is equal to dividend amount divided by R, where R is the interest rate being used in the analysis. Now using this simple model, the implied price per share for McDonald's is $16.87 per share, computed as follows. The price is equal to $2.53, that's the current dividend divided by 15%. Remember, that's the discount rate that we're using. That gives an estimated price of $16.87. Note that this valuation assumes that the only value that McDonald's shareholders get from the company is…

Contents