Use Model 3 34 on the Dividend Discount Model tab of
Use Model 3.34 on the Dividend Discount Model tab of the chapter spreadsheet.)
a.) Describe the pattern of PEP's dividend growth rates over the past 5 years.
b.) Do you think the forecasted dividend growth (5%, 4%, 3%, 2% and 2%) fits well with the historical dividend growth pattern?
c.) Why is PEP's required return so low (4.833%)?
d.) Does PEP's dividend yield represent a substantial portion of its expected return?
e.) Describe PEP's overall valuation based on the dividend discount model shown in the example.
f.) Does your answer to e.) change if you stress PEP in the model and raise its beta to 0.55?
g.) Next, reset PEP's beta to its historical average by removing the alternative beta (cell D92) and reducing the long-term perpetual growth rate from 2% to 1% (cell L80). Describe PEP's valuation after reducing the expected dividend growth rates.
h.) Write a brief overview of PEP's valuation based on a dividend discount model.
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