5. Using the three financial statements, calculate the five-year historical average for Columbia's Return on Equity (ROE = Net income / Total stockholder's equity) and average dividend payout rate (Dividend paid / Net income). 6 To determine the stock value based on the dividend-discount model: 1. Create a timeline in Excel for five years. 2. Forecast the next five annual dividends based on the current dividend amount ( from 2) and the five-year growth rate ( from 4). 3 Determine the long-term dividend growth rate using Eq. ( g=retention rate*return on new investments) , and Columbia's retention rate (1- average payout rate) and expected return on new investments (use average ROE). 4 Use the long-term growth rate to determine the stock price for year four. Determine the current stock price. To determine the stock value based on the discounted free cash flow method: 1 Forecast the free cash flows using the historic data from the financial statements to compute the five-year average of the following ratios: 1. EBIT/Sales: Calculate EBIT as EBITDA (Income Statement) less Depreciation and Amortization (Statement of Cash Flow) 2 Net Property Plant and Equipment/Sales Net Working Capital (excluding cash)/Sales Create a timeline for the next seven years. Forecast future sales based on the most recent year's total revenue growing at the five-year growth rate ( from 4) for the first five years. Use a long-run revenue growth rate of 3% for year six. 4. Use the average ratios computed in part (e) to forecast EBIT, Net Investment (change in Sales * Net PPE/Sales), and Increases in NWC (change in sales * NWC/Sales) for the next seven years. 5. Forecast free cash flow for the next six years where the current corporate tax rate of 21%. 6. Estimate the terminal enterprise value in year five using the free cash flow in year six