Investments Textbook A multifaceted approach to value investing with stock valuation based on intrinsic value estimated from cash returns, appraised value of assets, and other facets of value. The University of Chicago Press. The intrinsic value of a share of stock is defined as the present value of all cash payments to the investor in the stock, including dividends as well as proceeds from the ultimate sale of the stock, discounted at the appropriate risk-adjusted interest rate. A common term for the market consensus value of the required rate of return is the market capitalization rate.
Market values can diverge from intrinsic values.
Notice that if the growth rate is zero, the constant growth DDM formula is the same as the perpetuity formula. The constant growth DDM is valid only when the dividend growth rate is less than the discount rate. Discounted Cash Flow Formula for Expected Return . The DCF formula is for a stock whose market price equals its intrinsic value. It is important to recognize that growth per se is not what investor's desire.