From the table below answer the followings: Stock Valuation: Assume each company stock has an expected (constant)
Question:
From the table below answer the followings:
Stock Valuation: Assume each company stock has an expected (constant) dividend growth rate of 1.35% and a required rate of return of 10.7%. (a) Calculate the intrinsic value of each company stock you purchased. (b) Determine whether the price you paid for the stock was just right, overvalued or undervalued
Intrinsic value in this method means the value of the stock is based solely on the expected rate of growth of the dividend the company pays.
Note: If the price you paid was more than the value you calculated the stock was overvalued. If the price you paid was equal to the value you calculated the price was just right. If the price you paid was less than the value you calculated the stock was undervalued.
Formula: P = D0(1 + g)/ (R – g); where:
P = stock price; D0 = current dividend; R = Required rate of return; g = constant growth rate
| Variables | Company 1 | Company 2 | Company 3 | Company 4 |
| Dividend when you purchased the stock (D0) | ||||
| Dividend Growth Rate (g) | 1.35% | 1.35% | 1.35% | 1.35% |
| Required Rate of Return (R) | 10.70% | 10.70% | 10.70% | 10.70% |
| Intrinsic Value (P) | ||||
| Purchase Price (price you paid) |
| Part 1 | Table 1 | |||
| Required | Selection 1 | Selection 2 | Selection 3 | Selection 4 |
| Company Name | Apple Inc. (AAPL) | Microsoft Corporation (MSFT) | Coca-Cola Consolidated, Inc. (COKE) | Johnson & Johnson (JNJ) |
| Company Symbol (Ticker) | AAPL | MSFT | COKE | JNJ |
| Website Visited | https://finance.yahoo.com | https://finance.yahoo.com | https://finance.yahoo.com | https://finance.yahoo.com |
| Date Visited | 8-Feb-23 | 8-Feb-23 | 8-Feb-23 | 8-Feb-23 |
| Stock Features | ||||
| Price to Earnings Ratio (P/E Ratio) | 26.26 | 29.73 | 14.56 | 24.28 |
| Current Dividend ($) | 0.92 (0.61%) | 2.72 | 2.00 | 4.52 |
| Dividend Yield (%) | 0.0061 | 1.06% | 0.38% | 2.77% |
| Earnings per Share (EPS) | 5.89 | 9 | 35.19 | 6.73 |
| Beta | Beta (5Y Monthly) 1.28 | Beta (5Y Monthly) 0.92 | Beta (5Y Monthly) 0.95 | Beta (5Y Monthly) 0.54 |
| Market Capitalization: | 2.447T | 1.992T | 4.802B | 427.206B |
Expert Answer:
To calculate the intrinsic value of each companys stock and determine whether the price paid was jus... View the full answer
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
