Question: Estimating the stock value. (10 marks) Using the Discounted dividend model (DDM) estimate the intrinsic value of the firms' stocks using the following steps: Estimate

Estimating the stock value. (10 marks) Using the Discounted dividend model (DDM) estimate the intrinsic value of the firms' stocks using the following steps: Estimate the dividend growth rate using the actual growth rate for the last 5 years. Estimate the required rate of return using the CAPM formula (assume risk free rate is 5% - the average T bill rate over the last five years) Use the DDM to find the stock's intrinsic value. Compare the calculated value with the stock's current price and make a comment. III. Estimating cost of capital. (10 marks) Estimating Cost of Capital (WACC) What is the book value of debt and equity? What are the costs of debt and Equity? What are the weights of debt and equity? What is the cost of capital for the firm? (Assume tax rate is 40%)

Step by Step Solution

★★★★★

3.32 Rating (149 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

I Estimating the stock value using the Discounted Dividend Model DDM Step 1 Estimate the dividend gr... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (2 attachments)

6642a1e7ef405_977269.pdf

180 KBs PDF File

6642a1e7ef405_977269.docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

A glass manufacturer produces hand mirrors. Each mirror is supposed to meet company standards for such things as glass thickness, ability to reflect, size of handle, quality of glass, color of...

1 What are the main components of personal financial planning? Solve What is the purpose of a financial plan? Solve Identify some common actions taken to achieve financial goals. How does a job...

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...

These are a few questions that you might find useful in doing the project analysis and include the following. I. Financial Statements Analysis (45 Marks) Ratios analysis Calculate the company's...

In this chapter, we described the various factors that influence stock prices and the approaches that analysts use to estimate a stocks intrinsic value. By comparing these intrinsic value estimates...

5. To put the firm's current P/E ratio in perspective, it is useful to compare this ratio with that of other companies in the same industry. To see how XOM's P/E ratio stacks up to its peers, refer...

1. For purposes of this exercise, lets take a closer look at the stock of Exxon Mobil Corporation (XOM). Use websites such as Yahoo! Finance, Google Finance, MSN Money...

6. In the text, we discussed using the discounted dividend model to estimate a stock's intrinsic value. To keep things as simple as possible, let's assume at first that XOM's dividend is expected to...

In this chapter, we described the various factors that influence stock prices and the approaches that analysis use to estimate a stock's intrinsic value. By comparing these intrinsic value estimates...

Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting machine, but in the long run, the market is a weighing machine." In this quote, Benjamin Graham...

Worthington Company employs a job-order costing system. Before disposition of the underapplied or overapplied over head, selected year-end balances from Worthingtons accounting records were: Cost of...

The UHCL credit union has a trouble in getting the correct staffing levels to match customer arrival patterns. On some days, the number of tellers was too high relative to the customer traffic, so...

Can give me at least three goals and action as tranforamtional leadership?

Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 to determine in what...

Wal-Mart Stores (Walmart) is the worlds largest retailer. It employs an everyday low price strategy and operates stores as three business segments: Wal-Mart Stores U.S., International, and Sams Club....

Iona wrote her will. The following year, she wrote another will that expressly revoked the earlier will. Later, while cleaning house, she came across the second will. She mistakenly thought that it...

Alta Corporation entered into an agreement with Snowfire Company to lease equipment for use in its ski manufacturing facility. The lease is appropriately recorded as a purchase by Alta and as a sale...

At December 31, 2018, the financial statements of Hollingsworth Industries included the following: Net income for 2018 .........................................................................$560...

A shaft carries five masses A, B, C, D and E which revolve at the same radius in planes which are equidistant from one another. The magnitude of the masses in planes A, C and D are 50 kg, 40 kg and...

What does maturity matching mean, and what is the advantage of this financing policy?

The Severn Company plans to raise a net amount of $270 million to finance new equipment in early 2022. Two alternatives are being considered: Common stock may be sold to net $60 per share, or bonds...

Investors require an 8% rate of return on Mather Companys stock (i.e., r s = 8%). a. What is its value if the previous dividend was D = $1.25 and investors expect divi- dends to grow at a constant...

=+39. eBay. An Australian collector purchased a quantity of cricket cards and is going to sell them on eBay. He has 19 Ashes Cricket Card sets. In recent auctions, the mean selling price of such...

=+40. Real estate. A real-estate broker in the university town of Maastricht, in the Netherlands, purchased 3 two-bedroom houses in a depressed market for a combined cost of $500,000. He expects the...

=+c) Find the standard deviation of the net revenue.