The correct answer is: D. intrinsic stock
The intrinsic value of a stock is the theoretical price at which it should be traded. It is calculated by taking into account the company’s future cash flows and discounting them back to the present value.
The first step in calculating the intrinsic value of a stock with non-constant growth rate is to find the company’s sustainable growth rate. This is the rate at which the company can grow its earnings without having to raise additional capital.
The second step is to calculate the company’s terminal value. This is the value of the company at the end of the sustainable growth period. It is calculated by taking the company’s earnings at the end of the sustainable growth period and multiplying it by a multiple.
The third step is to calculate the present value of the company’s future cash flows. This is done by taking the company’s future cash flows and discounting them back to the present value using the company’s cost of capital.
The fourth and final step is to add the present value of the company’s future cash flows to the terminal value to get the intrinsic value of the stock.
Here is a more detailed explanation of each option:
- A. expected intrinsic stock – This is not a valid option. The intrinsic value of a stock is the theoretical price at which it should be traded, not the expected price.
- B. extrinsic stock – This is not a valid option. The intrinsic value of a stock is based on the company’s fundamentals, not on external factors such as investor sentiment.
- C. expected price of stock – This is not a valid option. The intrinsic value of a stock is the theoretical price at which it should be traded, not the expected price.
- D. intrinsic stock – This is the correct answer. The intrinsic value of a stock is the theoretical price at which it should be traded. It is calculated by taking into account the company’s future cash flows and discounting them back to the present value.