Part $4$

Enterprise Valuation and Equity Value

Please go to finance.yahoo.com and find a company of your choice. For this question, I

would like you to choose a company that pays positive dividends and has positive

earnings per share. Under the $$Financials$$ tab, you can look up information from the

Balance Sheet, Income Statement, and Cash Flow Statement. Under the $$Statistics$$ and

$$Summary$$ tab, you can find various information about the company$$s stock. Utilizing

the necessary information, please answer the following questions.

$1)$ Calculate the fair price of the company$$s stock using the Constant Dividend

Growth Model $($Gordon$$s formula$).$ You may use CAPM to calculate the

required rate of return $($assume a market return of $8\%$ and a risk$-$free rate of

$5\%)$ and the product of retention ratio and ROE as a proxy for future dividend

growth rate.

$2)$ Calculate the fair price of the company$$s stock using the Free Cash Flow

$($FCF$)$ Valuation approach.

a$.$ First, find the most recent free cash flow reported. Using the

information, estimate the company$$s FCF $10$ years into the future

using $8\%$ as the growth rate. Thereafter, calculate the terminal value

using a $2\%$ growth rate.

b$.$ You should use WACC as the appropriate discount rate for all FCFs$.$

Assume a market return of $8\%$ and a risk$-$free rate of $5\%$ for the cost

of equity. Assume $10\%$ for the after$-$tax cost of debt. Use the Debt$-$to$-$

Equity ratio and Total Debt to calculate the respective weight.

c$.$ Use Total Debt and Ordinary Shares Number to calculate the per share

price.

$3)$ Compare the estimates from each approach from $1)$ and $2)$ with the current

market price $($please list the date you observed the price$).$

Note: For $1),$ you cannot use the Constant Dividend Growth Model if the growth rate is

larger than the required rate of return. In such a case, please estimate the future dividend

stream using the calculated growth rate $10$ years into the future. Thereafter, please

assume $2\%$ as the lower growth rate and conduct analysis using a Non$-$constant two$-$stage

growth model instead to answer the question