NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
Asha Textiles is expected to pay a dividend of Rs 6 per share next year. Dividends are expected to grow at 5% per annum forever, and the investor's required return is 11%. What is the intrinsic value per share?
The intrinsic value is Rs 100 per share. Using the constant growth model, the next dividend of Rs 6 is divided by the required return of 11% minus growth of 5%, which is 6%, giving 6 divided by 0.06 equal to Rs 100.
- ARs 100Correct
- BRs 54.55
- CRs 120
- DRs 37.50
Explanation
Value = D1/(r-g) = 6/(0.11-0.05) = 6/0.06 = Rs 100. Check: 100 x 0.06 = 6. Rs 54.55 results from dividing by 11% alone, ignoring growth. Rs 37.50 results from dividing by (r+g)=16%. Rs 120 uses 5% as the denominator.
Did you get it right without looking?
One question tells you little. A timed set on Valuation Principles shows your real accuracy, how long you take and where you lose marks.
More Valuation Principles questions
- A stock trades at a P/E of 20 and its EPS growth rate is expected to be 16% a year. What is its PEG ratio?
- A company's EBITDA is Rs 200 crore, total debt Rs 300 crore, cash Rs 100 crore, and market capitalisation Rs 1,400 crore. There are no minor…
- Company X has an enterprise value of Rs 5,000 crore, cash of Rs 400 crore, total debt of Rs 1,400 crore and 50 crore shares outstanding. EBI…
- A stock has a book value per share of Rs 80 and a return on equity of 15%. The required return on equity is 12%. Using the price-to-book rel…
- A company's free cash flow to the firm (FCFF) next year is Rs 220 crore and is expected to grow at 5% forever. WACC is 12%. Net debt is Rs 6…
- A company has a share price of Rs 240, earnings per share of Rs 16, book value per share of Rs 120 and an expected dividend of Rs 8 per shar…