Required:
Part I
consists of three questions.
Do the computations for the example below. Show the computations step by step, so Mr. Hillbrandt can easily follow your examples.
1. The company's common stock dividends are anticipated to grow at a constant 5.5% growth rate per year going forward. The company just paid an annual dividend (that is, D-zero) of $3 per share. What's the intrinsic value of the stock based on the following required rates of return?
1.6%
2.8%
3.10%
4.12%
2. If the stock is currently selling for $40 per share, is the stock a good buy? Interpret the results and justify your decision.
3. The company just paid an annual dividend of $1.50 per share. Dividends are anticipated to grow at a stable rate of 10% per year forever. The stock's beta is 1.2, the risk-free rate is 4%, and the expected return on the overall stock market is 11%. What is the intrinsic value of the company's common stock?
Part II
Select one company that is a member of the Dow Jones Industrial Average. The listing is here:
Apply the Dividend Discount Model and justify why you think that the stock is currently undervalued, overvalued, or fully valued. Please be sure to state your assumptions and justify your results. What is the relationship, if any, between stockholders' wealth and financial decisions?
Memo (use Word).
Explain the concept and computations in part I to the CEO. Start with an introduction and end with a conclusion. Each of the four or five paragraphs should have a heading.
Short Essay -
Let's look at this issue from an investor's perspective and respond to the question above. Do research as needed and respond to the questions posed in part II.
Start with an introduction and end with a summary or conclusion. Use headings. Don't forget to reference your sources. Maximum length of two pages.
Assignment Expectations
Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.