Please pick one to discuss Chapter 11 How is the intrinsic v

Please pick one to discuss:

Chapter 11:                 

How is the intrinsic value of a firm determined using the constant growth model?
How is the intrinsic value of a firm determined using the constant dividend discount model?
How are Price Earnings Ratios using in stock analysis?
How is the earnings multiplier used to forecast stocks or the stock market?

Solution

Q3

Price earnings ratio of a company is compared with sector ratio or ratio of similar companies (similar capital structure, same industry, similar profitability and growth) to know whether stock is undervalued or overvalued. If the stock is undervalued, one buys the stock and if it is overvalued one sells the stock.Price earnings ratio can be used to value a company-use reference ratio and multiply by company\'s EPS to get the share price.