What is the major difficulty with using discounted cash flow approaches to estimate a stock’s intrinsic value?
A) Prices in the stock market move from moment to moment.
B) Small changes to the assumptions of k or g result in major changes in the estimated value.
C) It is extremely unlikely that a stream of cash flows will continue to grow at the same rate.
D) The relative valuation techniques are more accurate approaches.

Question

Quizplus · Accepted Answer

Small changes in the discount rate (k) or growth rate (g) can significantly impact the estimated intrinsic value, making the model highly sensitive to these assumptions.

What Is the Major Difficulty with Using Discounted Cash Flow