Ask Question
22 June, 18:23

Seaside Toys currently earns $2.00 per share and currently pays $1.00 per share in dividends. It is expected to have a constant growth rate of 5 percent per year. The required rate of return is 15 percent. What is the intrinsic value of this stock

+5
Answers (1)
  1. 22 June, 22:13
    0
    The intrinsic stock value is $10.5

    Explanation:

    The inherent value of any other assets or a share of which an investor is expected to have. differences between the dividend discount method (DDM) and the current price is used to evaluate intrinsic value.

    The known formula for the Gordon Growth version of the DDM which focused on dividends is given below,

    The Intrinsic Price of Stock = D1 / (r - g)

    Let recall the values,

    D1 = The Dividends after one year from the now

    r = The Required rate of return

    g = The Growth rate of dividends

    Then,

    The Intrinsic Price of Stock = $1 (1 + 5%) / (15% - 5%)

    Intrinsic Price of Stock = $10.5
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Seaside Toys currently earns $2.00 per share and currently pays $1.00 per share in dividends. It is expected to have a constant growth rate ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers