Wilbur and Orville are brothers. They're both serious investors, but they have different approaches to valuing stocks.
Question:
Wilbur and Orville are brothers. They're both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the dividend valuation model. Orville prefers the free cash flow to the equity valuation model. As it turns out, right now, both of them are looking at the same stock—Wright First Aerodynmaics, Inc. (WFA). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock-solid,dividend-paying stock. The brothers have gathered the following information about WFA's stock:
Current dividend (D0)=$3.30/share
Current free cash flow (FCF0)=$1.0 million
The expected growth rate of dividends and cash flows (g)=8%
The required rate of return (r)=16%
Shares outstanding=500,000 shares
How would Wilbur and Orville each value this stock?
Fundamentals Of Investing
ISBN: 9780134083308
13th Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk