Question

The dividend discount model is still useful even when the company pays no dividends. For example, Amazon has never paid a dividend, but we can anticipate that Amazon will eventually pay a considerable level of dividends in the future. Suppose that Amazon will pay its first dividend of $201 per share in 10 years.

Does this invalidate the divident discount model?

Answer 1

NO It doesn't.

Step-by-step explanation:

As the price will discount the expected 201 dollar of dividens for rate of return in ten years along with future expected dividends

`(201)/((1+r)^(10)) = PV`

This present value will be the value of amazon share price or it will be added to the present value of other expected dividends.