I NEED HELP WITH NUMBER 7 ONLY. THANKS!!!

Data for Walmart as of April 2019

Market Price	$103.18
# Shares (mm, or millions)	2,897
Long term debt ($mm from balance sheet)	$45,396
Tax rate (T)	25%
Walmart beta ()	0.66
Current risk free rate (rf)	2.59%
Estimated market risk premium	6.00%
Estimated underwriter spread	1.0%
Estimated additional flotation costs	0.5%
Estimated total flotation cost (as a % of debt face value)	1.50%

WalMart data to use	2015	2016	2017	2018	2019
Dividend payout ratio (dividends paid out as a % of net income)	38.02%	42.89%	45.59%	62.04%	91.68%
Net income ($ millions)	$16363	$14694	$13643	$9862	6670
Common equity $ (millions, book value)	$85937	$83611	$80535	$80822	79634
ROE (net income/common equity or NI/CE)	19.04%	17.57%	16.94%	12.20%	8.38%
	2015	2016	2017	2018	2019
Dividend history ($/share)	$1.91	$1.96	$2.00	$2.04	$2.08
		2020	2021	2022	2023
Dividend estimates ($/share)		$2.14	$2.05	$2.40	$2.48

Basic starting point data:

1)	Value of equity (market capitalization)	298912
2)	Value of long term debt (use book value)	45396
3)	Weight of equity	.868
4)	Weight of debt	.132

Show your inputs and/or calculations below (add space as necessary, make it very clear how you arrived at your final answers above)

1. 103.18x2897=28912.46 ( market price x # of shares )
2. Answer was given
3. 298912.46/(45396+29891.46) = .868 Value of equity/(value of debt + value of equity)
4. 45396/(45396+298912.46)=0.132 Value of debt( value of debt + value of equity)

Calculate the cost of equity:

The cost of equity can be calculated with the dividend discount model or using CAPM.

We will start with the dividend discount model: r = D1/P0 + g We have D1 (2020 expected dividend) and P0 (current stock price), it is g that must be calculated.

The growth rate (assumed constant) for dividends can be calculated two different ways, 1) Calculate g using historic or projected trends in dividends per share or 2) Calculating g from ROE and reinvestment in the firm: g = ROE * (1-payout ratio). Read the following questions and clearly answer the question as asked, using the appropriate estimation method for the growth rate.

5. What is the 3 year growth rate (2020-2023) of expected dividends? 5.40%

Calculate and describe how you arrived at your answer (what were the inputs).

(Current dividend-previous dividend)/previous dividend

2021 growth % - (2.05-2.14)/2.14= -4.21%

2022 % - (2.40-2.05)/2.05= 17.07%

2023% - (2.48 2.4)/2.40 = 3.33%

(-4.21+17.07+3.33)/3 = 5.40%

6. What is the 4 year growth rate (2015-2019) of actual dividends? 2.15%

Calculate and describe how you arrived at your answer (what were the inputs).

Calculate growth % by (current dividend-previous dividend)/previous dividend.

1.(1.96-1.91)/1.91= 2.62%

2.(2-1.96)/1.96=2.04%

3.(2.04-2)/2=2.00%

4. (2.08-2.04)/2.04=1.6%

5.(2.62+2.04+2.00+1.6)/4=2.15%

7. DISCUSS: Do either of these values seem appropriate? If so, which one and why?

I expect a few sentences that discuss issues you see with using the dividend discount model in this situation. Your answer should reference what you see for the two different values you have just calculated.