Question

You are forecasting a stock to pay the following dividends:
$4.40 , $3.45 , $4.

The dividends will then begin declining at a rate of 5.0% for the foreseeable future. What is the intrinsic value of this stock if the required return is 14%?

Answer 1

Intrinsic value of this stock will be close to $14 as the dividends $4.40 , $3.45 , $4 sum up to 11.85 and 14% returns makes it 13.508.

Know more about intrinsic value:

A thing, asset, or financial contract can have intrinsic value if it has some basic, objective value. It may be a good buy or a good sale if the market price is less than that value.

There are various approaches for determining a reasonable appraisal of a share's intrinsic value when reviewing equities. Models make use of elements like residual income, discounted cash flows, and dividend streams.

Each model heavily depends on reliable assumptions. The values estimated by the model will differ from the genuine intrinsic value if the assumptions made are incorrect or false.

Learn more about intrinsic value here:

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