Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Duxx201 -

Good question and I see your point. Of course, we do not know if, or when, other investors will bid up the stock so that market value and intrinsic value are in equilibrium.

In any event, the time value of money is in ER. To illustrate, let's examine a company that I am thinking of buying.

If my cost of equity (discount rate) is 9%, then IV is $226 and ER is 157%. The firm's current stock price is $88.

At 10%, IV is $201 and ER is 129%.

At 12%, IV is $182 and ER is 107%.

So as we see, a change in the time value of money assumption changes our ER.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.