You will use the three-stage DDM with a linearly declining growth rate in stage 2 to compute the intrinsic value of 

Walt Disney stock by employing the information in the picture below:

You are expected to examine the following underlying assumptions of the DDM model provided by Bloomberg:

1. The short and long-term growth rate
2. Long-term payout ratio
3. The usage of the three-stage model versus the one and two stage models
4. The number of years in the growth and transition stages

Transcribed Image Text:

Earning Per Share FY1 Earning Per Share FY2 Earning Per Share FY3 Dividends Per Share Growth Years = 7.188 = 7.767 = 8.484 = 1.690 = 7.000 Transitional Years Long-Term Growth Rate = 10.200% Closing price on May 11th = 102.070 = 10.000 Bond Rate Country premium = rm -rf Beta Risk premium Beta * (rm -rf) Payout during Growth yrs Payout at Maturity Growth Rate at Maturity = 2.970% = 7.240 % = 23.511% = 45.000% Earning Per Share FY1 Earning Per Share FY2 Earning Per Share FY3 Dividends Per Share Growth Years = 7.188 = 7.767 = 8.484 = 1.690 = 7.000 Transitional Years Long-Term Growth Rate = 10.200% Closing price on May 11th = 102.070 = 10.000 Bond Rate Country premium = rm -rf Beta Risk premium Beta * (rm -rf) Payout during Growth yrs Payout at Maturity Growth Rate at Maturity = 2.970% = 7.240 % = 23.511% = 45.000%

Answer rating: 100% (QA)

The detailed answer for the above question is provided below B Longterm ... View the full answer