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# How to Value Common Stock & Return Income

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a. Explain the methods of how to find the value of common stock.
b. Describe the return (income) an investor can receive from common stock.

Thank you.

#### Solution Preview

Dear Student,

Explain the methods of how to find the value of common stock.

a. Explain the methods of how to find the value of common stock.
First method:
Present value of common stock= dividend/ required rate of return

For example:
Dividend= \$ 10 per share
Required rate of return=20%
Present value of common stock= \$10/20%=\$50 per share.

Second method:
Present value of common stock= free cash flow per share/required rate of return
Free cash flow per share= free cash flow/number of shares
Free cash flow= cash flow from operating activities-capital expenditure-dividends
For example, if

Cash flow from operating activities= ...

#### Solution Summary

This solution explains five methods for how to find the value of common stock and describes the return that an investor can receive from common stock.

\$2.19