Assignment
Description
Given that Dr. Bueller wants to make stocks a major part of his investment portfolio, you decide to focus on how to analyze stocks. You decide to use a large U.S. industrial company, to demonstrate how to analyze stocks.
The research department has provided you with the following information regarding this company.
• This year (2009), free cash flow is expected to reach $325 million.
• In 2010, it is expected to reach $350 million.
• 2011, $400 million.
• 2012, $425 million
• And 2013, $450 million.
The analyst has projected an intrinsic value for this stock of $65.00.
Dr. Bueller is busy this week, so he asks you to send him an e-mail. Compose an e-mail that in addition to explaining the following information for the industrial company, which is a publicly traded company that trades on the NYSE, addresses the efficient market hypothesis, and how the analyst responsible for monitoring this stock has projected this intrinsic value for the company's stock.
• 52-week range: Hi 75 Lo 35
• Current stock price: 50
• Dividend Yield: 2.75%
• Dividend per share: 1.375
• P/E ratio: 20
• Earnings per share: $2.50
• Shares outstanding: 100 million
• Market capitalization: $5 billion
• Cost of capital: 9%
• Growth rate of free-cash-flows beyond 2013: 3%
Assignment Guidelines
• Using the textbook, course materials, and Web resources, find the definitions for the ten values listed above in the Assignment Description.
• In your own words, rewrite the definition for each of the ten values.
• Demonstrate how to calculate the values using the information from the company's stock as an example.
• Next, answer the following questions:
o What is the efficient market hypothesis, and what is its relationship to stock valuation?
o What is the free-cash-flow approach to valuing stocks?
o Using the free-cash-flow approach, how did the analyst arrive at an intrinsic stock value of $65 for the company?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.