Question

Advantages of using 2-stage Discount cash flow valuation compared to other valuation method .

Answer 1

The two-stage discount cash flow model allows for only two stages of growth: first stage with non-stable growth  and athen steady state where the growth rate is stable and is expected to remain so for the long term.

Advantage of two-stage discount cash flow model compared to other valuation method :-

• Two stage discounted cash flow model provide flexibility in capturing changes in the underlying according to the firm character

• Two stage discount model to examine the value of growth so that to compare the actual prices paid for growth.

• At the time of smoothed historical growth rates in earnings and dividends were used as projected growth rates used this model.

• Accurate and reliable method there is for making investment decisions to compare other models.

• Other methods like relative valuation are easy to calculate but this method find best possible intrinsic value of stock.