Question

Why are dividends an important in determining the future price of the firm?

Why is it important to understand the prospectus of future growth of a company when determining its value, and more importantly, your investment strategy with that firm?

Answer 1

Dividend are important in discounting the future price of the company because it will be helpful in determination of the overall receipt in the hands of the shareholders and hence there is a specific dividend discounting model in order to arrive at the expected share price of the company.

it is important to understand the prospectus of the future growth of the company because when we are investing into the long-term with that company, we need to know about the growth prospectus because we are discounting the growth prospective in the intrinsic value of the company as markets have already been futuristic in nature, so they will be trying to efficiently discount the growth rate in today overall prices of the company, so investor would be looking for all the stocks who are relatively underpriced in accordance with their future performance and hence they can maximize their rate of return by finding out the undervalued stocks.