Q3) You're currently a buy-side analyst working for a big asset manager. You believe that investing...

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Q3) You're currently a buy-side analyst working for a big asset manager. You believe that investing in Tesla presents interesting opportunities for your fund: the share price is currently $119, earnings per share (last 12 months) are $4.5, and dividends per share are $1.35. While there is no consensus for the correct price of the stock, analysts agree that the appropriate discount rate for Tesla is 10%. a) A sell-side analyst at a prestigious investment bank estimates that the stock should trade next year for $132, and that dividends should grow by 12%. Using this information, compute the fundamental value of the stock. What do you think her recommendation would be? (5 points) b) A buy-side analyst at a big mutual fund has a different opinion. He thinks that next year dividend will be $1.4 per share, while the dividend in two more years will reach $1.7 per share, at which point the stock could be sold for $145. Using this information, compute the fundamental value of the stock. What do you think his recommendation would be? Explain why. (5 points) c) A seasoned manager at a hedge fund specializing in growth strategies thinks differently. He believes that for a mature stock such as Tesla, growth rate of dividends is consistent. i. According to this assumption, which implicit growth rate of dividends is consistent with the current observed share price? (5 points) Which return on investment does the market estimate in that case? (5 points) ii. Q3) You're currently a buy-side analyst working for a big asset manager. You believe that investing in Tesla presents interesting opportunities for your fund: the share price is currently $119, earnings per share (last 12 months) are $4.5, and dividends per share are $1.35. While there is no consensus for the correct price of the stock, analysts agree that the appropriate discount rate for Tesla is 10%. a) A sell-side analyst at a prestigious investment bank estimates that the stock should trade next year for $132, and that dividends should grow by 12%. Using this information, compute the fundamental value of the stock. What do you think her recommendation would be? (5 points) b) A buy-side analyst at a big mutual fund has a different opinion. He thinks that next year dividend will be $1.4 per share, while the dividend in two more years will reach $1.7 per share, at which point the stock could be sold for $145. Using this information, compute the fundamental value of the stock. What do you think his recommendation would be? Explain why. (5 points) c) A seasoned manager at a hedge fund specializing in growth strategies thinks differently. He believes that for a mature stock such as Tesla, growth rate of dividends is consistent. i. According to this assumption, which implicit growth rate of dividends is consistent with the current observed share price? (5 points) Which return on investment does the market estimate in that case? (5 points) ii.

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a The fundamental value of stock use the dividend discount model DDM The fundamental value is the pr... View the full answer