The dividend payout by a company can tell you a lot about what the management thinks of the current situation and what it sees upcoming in the future. Studying the dividend status is one of the basic methods of valuing stocks: Dividend Discount Model. The idea is that the stock is worth all of the future cash flows (i.e., dividends) discounted by the appropriate rate.

In this part of the project, assume the following metrics for Disney:

1. Discount rate: 14.885%
2. The dividends are expected to grow 13%, 13%, 14%, 25%, 14.7% for the next five years with the constant growth rate of 12.9%.
3. The current dividend for a Disney is $1.42.

Today's stock price for Disney is 151.03.

Calculate the theoretical stock price for Disney. Compare your answer to today's stock price. What do you see? Would you recommend potential investors to purchase Disney's stock? Why or why not?

The dividend discount model is by no means perfect. What would be some of the assumptions you put into the model that could change the computed stock price? How would the changes in your assumptions affect the computation? Explain the implications.

A written analysis in Microsoft Word and show your calculations in an Excel Spreadsheet.

Answer rating: 100% (QA)

Calculations and Analysis We will use the Dividend Discount Model DDM to calculate the theoretical stock price for Disney The formula is Stock Price D... View the full answer