Question: show work on excel n formulas and please help me abswer all parts ! Problem 1 Sara Smith is a surgical nurse at Orlando Surgery
Problem 1 Sara Smith is a surgical nurse at Orlando Surgery Centers (OSC), a small for-profit ambulatory surgery center whose stock is traded in the OTC market. A few nights ago, Sara received a call from her mother asking for some advice regarding a stock recommendation. Her mother said that her broker had recommended adding 1,000 shares of WSC stock to the family's retirement portfolio. Because Sara worked at OSC, her mother thought that Sara might have some special insights. Sara was finishing up her master's degree in healthcare administration at Advent Health University, so she thought this would be a good opportunity to apply some of the stock valuation concepts she had learned. To begin, she looked up some basic data: OSC beta coefficient=1.40 Yield on treasury bonds (risk-free rate) = 4 percent Required rate of return on the market portfolio= 10 percent Last dividend paid $2.00 Expected growth rate= a constant 8.6% . Current stock price= $50.80 Now, she must use this information to make some judgements about whether or not her mother should follow he broker's advice. Parta Use the Security Market Line (SML) of the capital asset pricing model (CAPM) to estimate the required rate of return on the stock. Part b Estimate the current fair value of the stock using the constant growth valuation model. Part c Based on the current value of the stock, what is the expected rate of return? Part d Based on parts a - c, should the stock be purchased? Please explain
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
