A way of valuing a stock price of the company grounded on the theory that the stock of the company is worth the summation of its payments of future dividend, discounted back to their present value is the dividend discount model (DDM). In simple words, it is used for valuing stocks grounded on the future dividends? NPV. In valuation techniques of discounted cash flow, the stock value is assessed grounded on PV of cash flow?s some measures. For cash flow, dividends are the most straightforward and cleanest measure for the reason that these clearly are cash flows that directly go to the investors. There three major components in DDM.
Intrinsic Stock Value (Valuation Summery)
Required Rate of Return (r)
Dividend Growth Rate (g)
For investors, intrinsic value calculation is very significant. Intrinsic value calculation assists them in deciding whether it is good to buy the stock or not. Investor will fail to buy an overvalued stock; though, they can buy an undervalued stock. A share?s intrinsic value signifies the company?s actual value and it comprises other variables, for example, trademarks, copyrights, and brand that cannot be redirected in the share?s market value. For calculating a share?s intrinsic value, company?s required rate of return, growth rate, and year 0 divided are required (Alvarez, 2015).
Undervalued Stock of Apple
For investors, stocks? intrinsic value is vital when it comes to determine the undervaluation or overvaluation of stock. The share is overvalued if the market value is higher than the share?s intrinsic value. Similarly, the share is undervalued if the market value is lower than the share?s intrinsic value (Investorwords, 2015). The intrinsic value of Apple 's c...
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...). What Is The Intrinsic Value Of A Stock. investopedia. Retrieved from http://www.investopedia.com/articles/basics/12/intrinsic-value.asp
Boundless. ?Types of Financial Decisions: Investment and Financing.? Boundless Finance. Boundless, 21 Jul. 2015. Retrieved from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-field-and-goals-of-financial-management-1/introducing-finance-22/types-of-financial-decisions-investment-and-financing-145-3871/
Kaplan Financial,. (2015). Kfknowledgebank.kaplan.co.uk. Retrieved from http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Financial%20Management.aspx#_x003C_a_x0020_href_x003D__x0022__x002F_KFKB_x002F_Wiki_x0025_20Pages_x002F_Corporate_x0025_20Finance.aspx_x003F_mode_x003D_none_x0020__x0022__x003E_The_x0020_financing_x0020_decision_x003C__x002F_a_x003E__0_1_0_1_2_0_0_0_0_0_0_0_0_0_0_0
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