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NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles

A company has expected dividend next year of Rs 12 per share, a constant growth rate of 6% and a required return on equity of 14%. What is the intrinsic value per share under the Gordon model?

The intrinsic value is Rs 150 per share. Dividing the expected dividend of Rs 12 by the gap between the required return of 14% and growth of 6%, which is 8%, gives Rs 150.

  1. ARs 85.71
  2. BRs 150.00Correct
  3. CRs 60.00
  4. DRs 109.09

Explanation

Value = D1/(ke − g) = 12/(0.14 − 0.06) = 12/0.08 = Rs 150. Check: 150 × 0.08 = 12. Rs 85.71 results from 12/0.14, ignoring growth. Rs 60 uses 12/0.20 by adding g.

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