Locate the single firm in your portfolio that you believe

Question

Locate the single firm in your portfolio that you believe has the most potential investment potential over the next year. For that firm:

1. From edgar-online.com (Links to an external site.)
2. , look up the company's most recent quarterly 10Q report as filed with the Securities and Exchange Commission.
3. Find the ROE, the number of shares outstanding, dividends per share, and net income. Record them in a spreadsheet. From this information,
4. Calculate the total amount of dividends paid (dividends per share * number of shares outstanding)
5. Calculate the payout ratio (total dividends paid/net income)
6. Calculate the plowback ratio (1-dividend payout rate)
7. Compute the sustainable growth rate. ( g= b * ROE, where b equals the plowback ratio)
8. Compare the calculated sustainable growth rate you calculated in 3 above with the P/E ratios over the last three years. (Plot the P/E ratios over the calculated sustainable growth rates in a scatter diagram. Describe the relationships between the two measures.
9. Compare the three year three-year growth rate of earnings per share with the growth rate you calculated above. Is the actual rate of earnings growth correlated with the sustainable growth rate you calculated? Explain.
10. Now calculate the intrinsic value of the firm. Make reasonable judgments about the market risk premium and the risk-free rate, or find estimates online, clearly identifying them.
11. What is the required return on the firm based on the CAPM? You can locate the beta for your firm from your Nasdaq portfolio or other sources.
12. Now, using a two-stage growth model, make reasonable assumptions about how future growth rates will differ from current growth rates and calculate a new rate. Clearly identify your assumptions and rationale for choosing those rates.