Let's use (KR) Kroger Company 23.84USD0.03 (0.15%)
Part A-Fundamental Valuation:
Estimate a growth rate for your firm's Dividends per Share.
Assume a 12.5% discount rate.
Calculate an estimated value of a share of the stock using the constant-growth model (Eq. 8-6 in the textbook), also known as the Gordon Growth Model.
Compare and contrast your valuation results with the current share price in the market.
Respond to this question: What changes in the variables would be necessary in your valuation to best approximate the market valuation?
Part B - Relative Valuation:
Estimate a growth rate for your firm's Earnings per Share (EPS).
Determine an applicable Price-Earnings (P/E) ratio for your firm in 5 years.
Calculate an estimated value of a share of the stock in 5 years using the P/E ratio model (Eq. 8-10 in the textbook).
Respond to this question: Would you characterize your stock as undervalued or overvalued? Explain.
Respond to this question: Based on your valuations in parts A and B, would you invest in this stock? Explain.