KimberlyClark, a household product manufacturer, reported earnings per share of 3.2 $ in 2014 and paid dividends per share of $1.7 in that year. The firm reported depreciation of $315 million in 2014 and capital expenditures of $475 million. (There were 160 million shares outstanding). This ratio of capital expenditures to depreciation is expected to be maintained in the long term. The working capital needs are negligible. Kimberly-Clark will maintain a debt ratio of 16.39%. The firm is in steady state and earnings are expected to grow 7% a year. The stock had a beta of 1.05. (The Treasury bond rate is 6.25%. and the market risk premium 5.5%)
a. Estimate the value per share, using the Dividend Discount Model.
b. Estimate the value per share, using the FCFE Model.
c. How would you explain the difference between the two models and which one would you use as your benchmark for comparison to the market price?