You have been asked to perform a stock valuation prior to the annual shareholders meeting next week. The two models you have selected to value the firm are the dividend discount model and the discounted cash flow model. Explain why the estimates from the two valuation methods differ. Address the assumptions implicit in the models themselves as well as those you made during the valuation process.

The dividend discount model (DDM) is one of the most basic of the absolute valuation models. The dividend discount model calculates the "true" value of a firm based on the dividends the company pays its shareholders. The justification for using dividends to value a company is that dividends represent the actual cash flows going to the shareholder, and so valuing the present value of these cash flows should give you a value for how much the shares should be worth, (Maverick, 2015).

The discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its future cash flows. DCF analysis attempts to figure out the value of a company today, based on projections of how much money it will generate in the future. If the company doesn't pay a dividend or its dividend pattern is irregular, in this case, move on to check if the company fits the criteria to use the discounted cash flow (DCF) Instead of looking at dividends, the DCF model uses a firm's discounted future cash flows to value the business, (Chen, 2019).

Assumptions implicit in the dividend discount models made during the valuation process is that while the DDM can be useful in assessing potential profit pay from stock, it has a few natural disadvantages. The first is that it can't be utilized to assess stocks that don't deliver profits, paying little heed to the capital picks up that could be acknowledged from putting resources into the stock. The DDM is based on the defective presumption that the main estimation of a stock is the arrival on venture it gives through profits. Assumptions implicit in the discounted cash flow (DCF) models made during the valuation process is that it is one instrument to compute a gauge of the present estimation of a supply of an organization depends on its future income projections. This is an extremely well known apparatus and speculators like it as it makes them consider future profits for their cash. It is likewise a decent rude awakening of the genuine estimation of the load of an organization. Future income projections are taken and limited to land at a sensible value an incentive for now, (Olivia, 2011).

Maverick, J.B. (2015). What are the drawbacks of using the Dividend Discount Model (DDM) to value a stock? https://www.investopedia.com/ask/answers/042315/what-are-drawbacks-using-dividend-discount-model-ddm-value-stock.asp

Olivia. (2011). Difference Between DDM and DCF. https://www.differencebetween.com/difference-between-ddm-and-vs-dcf/

Chen, J. (2019). Discounted Cash Flow (DCF). https://www.investopedia.com/terms/d/dcf.asp