The Sophie Silk Company (SSC) has a profit margin of 4 percent, an asset turnover of 2.5 times, a retention rate of 90 percent, and total assets to equity of 2.2. The company earned $1.75 per share this year. Assume SSC grows constantly forever.
a. What would you estimate as SSC’s stock price next year?
b. What would you estimate as the firm’s dividend next year?
c. Assume a required cost of equity (k) of 12 percent and use the DDM to determine the SSC’s stock value.
d. What other valuation models can be used to value SSC’s stock (no calculations required)? Why?