Question

You and I could have different intrinsic values.

True or False?

Answer 1

yes. it is true.

the intrinsic value can be different for different investors .The intrinsic value does not take into account the market values.it is the investors perception for a particular stock,asset hence can any two investors can have completely different perception for a particular stock. the required return required by an investor is an assumption made while calculating the intrinsic value. if the required return by an investor is 5% and the required return by another investor is 6%. so the intrinsic value will be different. intrinsic value is important for the value investor as they seek out to buy stocks which are trading cheap currently.the growth rate of dividends can be an assumption that is different for different investors.

the intrinsic value calculated by several methods as per the DIVIDEND DISCOUNT MODEL THE INTRINSIC VALUE IS :

P0 = D1/ Re - g

if the price calculated by this model, is less than the market price then the stock is undervalued and the investors would buy the stock. if the price is more than the intrinsic value calculated the investor would sell the stock, as the stock is overvalued.

as per the discounted cash flow analysis the intrinsic value is:

this method calculated the present value of stocks using the expected future cash flows and the time value of money.

the cash flows are discounted, and the present value is the intrinsic value of the stock.

asset based valuation : it adds up all the assets and subtracts the liabilities to calculate the intrinsic value.