Cost of Equity a. Compute their cost of equity capital using the 2-stage Dividend Discount Model .
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Cost of Equity | |||||||
a. | Compute their cost of equity capital using the 2-stage Dividend Discount Model . Use their current price, most recent annual dividend and projected 5 (n) year earnings growth rate. Use 3% as the long term growth rate. | t | Stage 1 CF | Stage 2 Value | |||
n = | 8 | 1 | |||||
D0 = | $2.15 | 2 | |||||
P0 = | $57.50 | 3 | |||||
Build your table with IF statements so if I change the number of periods for the change form short- to long-term in the table recomputes correctly. Your value for n should be able to take on any value from 2 to 16. | gs = | 18.00% | 4 | ||||
g = | 2.90% | 5 | |||||
kDDM = | 10.000% | 6 | |||||
7 | |||||||
b. | Find the kDDM that will set the computed price euqal to the value in E8. Paste it (As Values) in the cell below. | 8 | |||||
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c. | After completing part b, change kDDM back tp 10%. | 12 | |||||
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Data Table | 14 | ||||||
Build a Data Tables (You MUST use the Data Table Feature under Data/What If Analysis). Compute the sensitivity of the short-term growh rate on the computed Price. The growth should go from zero to 30 percent. | 15 | ||||||
16 | |||||||
Computed price = | |||||||
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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