Assignment
1. From the GICS sector assigned to you in class, pick a DIVIDEND-PAYING company within that industry and state what the sector, industry (which is the sub-sector), and company are. If you are having trouble finding a company within your assigned industry that pays dividends, please don't hesitate to ask the instructor for ideas. Please communicate the company you picked to the instructor by Wednesday, April 12 and list the current stock price in your paper and list the ANNUAL DIVIDEND YIELD AND ANNUAL DIVIDEND in US dollars. For simplicity, please only pick US companies.
2. Discuss the industry in which your company operates and what some macroeconomic and political risks are that concern your industry.
3. Calculate the required rate of return on your stock using the CAPM. FOR ALL COMPANIES, please assume 25% for the risk free rate (roughly equal to the prevailing 10-year Treasury) and assume a return on the market of 10%.
4. Calculate the growth rate of dividends by using the formula discussed in the book where g = ROE x b
5. Calculate the intrinsic value of your stock based on the Constant Growth Dividend Discount Model (DDM). As inputs, please use the results of the CAPM above as your market capitalization rate and please use the growth rate you calculated in #4 in your DDM model.
6. Determine whether your stock is under- or over-valued based on a comparison of your calculation of the intrinsic value of the stock based on the DDM above and the prevailing price of your stock in the market today.
7. Discuss reasons to go long or short on your stock.