DDM Versus DCF

This problem tests whether you understand what each intrinsic valuation method is actually discounting. A dividend discount model focuses on cash returned to equity holders through dividends, while a discounted cash flow model values the cash generated by the business before financing decisions. Interviewers like this question because it checks your grasp of the difference between equity value and enterprise value, along with the discount rate and terminal value approach that belongs in each framework. It also helps them see whether you understand when a model gives an equity value directly and when additional steps are needed to get there.