## Dividend Discount Model (DDM)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Facebook Inc., dividends per share (DPS) forecast

Stock valuation by this method is not possible because prior year DPS is equal to zero.

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.05%
0 DPS01 0.00
1 DPS1 = 0.00 × (1 + 0.00%)
2 DPS2 = × (1 + 0.00%)
3 DPS3 = × (1 + 0.00%)
4 DPS4 = × (1 + 0.00%)
5 DPS5 = × (1 + 0.00%)
5 Terminal value (TV5) = × (1 + 0.00%) ÷ (13.05%0.00%)
Intrinsic value of Facebook Inc.’s common stock (per share) \$—
Current share price \$276.92

Based on: 10-K (filing date: 2020-01-30).

1 DPS0 = Sum of the last year dividends per share of Facebook Inc.’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 1.41% Expected rate of return on market portfolio2 E(RM) 12.46% Systematic risk of Facebook Inc.’s common stock βFB 1.05 Required rate of return on Facebook Inc.’s common stock3 rFB 13.05%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rFB = RF + βFB [E(RM) – RF]
= 1.41% + 1.05 [12.46%1.41%]
= 13.05%

### Dividend Growth Rate (g)

Company does not pay dividends.