Dividend Discount Model (DDM) Homework Problem(due 10/10/18 in class) I want you to estimate and then compare the stock value of Coke (KO) and Pepsi (PEP) using the constant growth model(Gordon Growth Model). To do this, please follow the below steps:

Ensure you review the notes for any formulas/explanations

Estimate Dividend on T1 (D1):(do the following for both Coke and Pepsi):

Go to http://www.dividendinformation.com/

Pull up Coke (KO), find the current dividend, look at the history and trends and generate a forecast for the dividend next year (D1).

Document your process/logic for the value you selected

Estimate the growth rate of dividends going forward (in perpetuity)

Explain why you chose the rate you did

Assume a 9.25% required return on the stock (discount rate)

Calculate the Value of the stock based on all your assumptions

Given the current price of the stock (you can lookup on finance.yahoo.com)and holding the ORIGINAL assumption for required return from (3) above constant, calculate the growth rate. (use the example we did in class, the Gordon Growth as a guide its on blackboard)

Similarly, using the current price and holding the ORIGINAL assumed growth rate constant (from 2 above), calculate the assumed required return (r).

Analysis:

Compare your estimated DDM price to the latest stock price for the firm

What is your initial view on the rich/cheapness of the stock relative to your estimate.

Next, provide a side-by-side comparison between KO and PEP for all sets of outputs:

Your calculated estimates of Value, g and r from (4), (5) and (6) above

Tell me what stock you feel is a better investment after analyzing all of the information you have calculated?

Consider eachs difference in DDM price to actual

Consider if your estimates of g and r are reasonable vs. what is derived from the DDM model using the actual prices.

Documents:

Please print this document with all your answers and hand it to me next week along with a printout of any spreadsheet you used (if any).