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The Dividend Valuation Model (DVM) and the Capital Asset Pricing Model (CAPM) are two important models in the field of international business finance. Both models are used to evaluate the value of financial assets and make investment decisions. Although they have different approaches, they are commonly applied in the context of stock valuation, capital budgeting, and portfolio management.

Dividend Valuation Model (DVM)

The Dividend Valuation Model, also known as the Gordon Growth Model (GGM), is a method for valuing a company's stock based on the assumption that dividends will grow at a constant rate indefinitely. This model is particularly useful for valuing companies that pay regular dividends. The basic idea is that the value of a stock is the present value of its future dividends, which are expected to grow at a constant rate.

The formula for the DVM is as follows:

P0=D1r−gP_0 = \frac{D_1}{r - g}

Where:

• P0P_0 is the current stock price,
• D1D_1 is the dividend expected in the next period,
• rr is the required rate of return (or discount rate),
• gg is the growth rate of dividends.

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