InvestorQ : An IT Company currently pays a dividend of Rs 5 per share on its equity shares. The dividend is expected to grow at 6% per year indefinitely. Stocks with similar risk currently are priced to provide 12% expected return. What is the intrinsic value
Robert Singson made post

An IT Company currently pays a dividend of Rs 5 per share on its equity shares. The dividend is expected to grow at 6% per year indefinitely. Stocks with similar risk currently are priced to provide 12% expected return. What is the intrinsic value

Answer
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Aditi Sharma answered.
5 months ago


as per the dividend discount model, the value of the stock would Rs.83.33 (5/0.06). The denominator is the difference between the expected return and the dividend growth rate. However, this method is not frequently used to value intrinsic worth off companies and the focus is more on discounting future cash flows which is considered more reliable.