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    How to Value Common Stock & Return Income

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    Please help me with an accounting assignment by answering these questions:

    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.

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    https://brainmass.com/business/accounting/value-common-stock-return-income-522252

    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

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