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 of 5 percent per year. The required rate of return is 15 percent. What is the intrinsic value of this stock

Answer 1

The intrinsic stock value is $10.5

Step-by-step 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

Answer 2

$10.5

Step-by-step explanation:

The inherent value of a share or any other asset which an investor expects to have. The difference between current price and the

The dividend discount method (DDM) is used to evaluate intrinsic value. The commonly used formula for the Gordon Growth version of the DDM which focused on dividends,

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

where:

D1 = Dividends after one year from the now

r = Required rate of return

g = Growth rate of dividends

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

Intrinsic Price of Stock = $10.5