The price of a supernormal growth stock includes the present value of the stock's price at the end of the supernormal growth period.

Question

Quizplus · Accepted Answer

This is true. The price of a supernormal growth stock is calculated using the discounted cash flow (DCF) method, which involves estimating the cash flows generated by the company during the supernormal growth period and then discounting them back to their present value using a discount rate. The price at the end of the supernormal growth period, which is assumed to be constant, is also discounted back to its present value and added to the discounted cash flows to arrive at the stock price.

The Price of a Supernormal Growth Stock Includes the Present