ACTSC371 Lecture 16: Chapter 16 summary
16 Jan 2018
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Ieb wireframe: one approach to estimating intrinsic value is to focus on the rm"s book value, either as it appears on the balance sheet or as adjusted to re ect current replacement cost of assets or liquidation value. Another approach is to focus on the present value of expected future dividends, earnings, or free cash ow: dividend discount models give estimates of the intrinsic value of a stock. If price does not equal intrinsic value, the rate of return will differ from the equilibrium return based on the stock"s risk. This version of the ddm is simplistic in its assumption of a constant value of g. there are more- sophisticated multistage versions of the model for more-complex (cid:0)environments. In reality, however, rms progress through life cycles. In early years, attractive investment opportunities are ample and the rm responds with high plowback ratios and rapid dividend growth. Eventually, however, growth rates level off to more sustainable values.
