Calculate the stock price for your selected company using the constant growth formula and the low-end dividend
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Question:
For the required rate of return (r), use the following assumptions:
For a large capitalization company (greater than $10.0 billion in market capitalization) use 10.0%.
For a mid-cap company (between $2.0 billion and $10.0 billion in market capitalization) use 12.0%.
For a small-cap company (less than $2.0 billion in market capitalization) use 15.0%.
Show your calculations.
In a similar manner, calculate another estimate of the stock price for your selected company using the constant growth formula and the high-end dividend growth rate.
Use the same assumptions for the required rate of return (r) that you used for the low-end stock price, other than using the high-end dividend growth rate.
Show your calculations.
Compare each of the two stock prices you just calculated to the current stock price per share of the company.
State whether each constant growth stock price (low-end and high-end) is above or below the current price.
State whether each constant growth stock price (low-end and high-end) indicates if the stock price is currently under-valued or over-valued in the market.
Determine your concluded stock value, based on the two calculations using the constant growth formula.
Table 1: Nike Annual Dividends for Target Corporation
DATE | NAME | DIVIDEND | Growth rate in dividend | Decrease in dividend Growth rate |
2021 | Nike Inc. | 1.07 | 12.63% | 2.17% |
2020 | Nike Inc. | 0.95 | 10.47% | 0.21% |
2019 | Nike Inc. | 0.86 | 10.26% | -1.17% |
2018 | Nike Inc. | 0.78 | 11.43% | -1.47% |
2017 | Nike Inc. | 0.7 | 12.90% | -1.91% |
2016 | Nike Inc. | 0.62 | 14.81% | -0.08% |
2015 | Nike Inc. | 0.54 | 14.89% | 0.26% |
2014 | Nike Inc. | 0.47 | 14.63% | -2.51% |
2013 | Nike Inc. | 0.41 | 17.14% | 0.00% |
2012 | Nike Inc. | 0.35 | 17.14% | 0.00% |
Average Growth rate for Most Recent 10 years | 13.63% |
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Average Growth rate for Most Recent 5 years | 11.54% |
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Average Growth rate for Most Recent 3 years | 11.12% |
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Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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