Current year dividend of sun ltd is rs 5 per share .expected growth rate is 8% and the market capitalization rate is 10%.calculate the intrinsic value of the stock?
Answers
Answered by
11
Hyy XD
The Answer is as follows:
Option (D) is correct.
Explanation:
Given that,
Current year dividend, D0 = Rs 5
Expected growth rate, g = 8%
Market capitalization rate, ke = 10%
Next year dividend, D1 = D0 × (1 + g)
= 5 × (1 + 0.08)
= 5.4
Intrinsic value of stock:
= D1 ÷ (ke - g)
= 5.4 ÷ (0.1 - 0.08)
= 5.4 ÷ 0.02
= Rs. 270
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Answered by
1
The intrinsic Value of the stock will be Rs.270.
GIVEN: Current year dividend of sun ltd is rs 5 per share .expected growth rate is 8% and the market capitalization rate is 10%.
TO FIND: Intrinsic Value of stock
SOLUTION:
As we are given,
Current year dividend, D0 = Rs 5
Expected growth rate, g = 8%
Market capitalization rate , ke= 10%
As we know,
Next year's dividend,
D1 = D0 × (1 + g)
= 5 × (1 + 0.08)
= 5.4
The Dividend for next year is 5.4.
Also,
The intrinsic value of the stock:
= D1 ÷ (ke - g)
= 5.4 ÷ (0.1 - 0.08)
= 5.4 ÷ 0.02
= Rs. 270
Therefore, the intrinsic value of a stock is Rs.270.
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