10-5a.The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2.

b.0123
||||
1.501.772.092.19

31.29 =

The horizon, or terminal, value is the value at the horizon date of all dividends expected thereafter. In this problem it is calculated as follows:c.The firm’s intrinsic value is calculated as the sum of the present value of all dividends during the supernormal growth period plus the present value of the terminal value. Using your financial calculator, enter the following inputs: CF0 = 0, CF1 = 1.50, CF2 = 1.77 + 31.29 = 33.06, I/YR = 10, and then solve for NPV = $28.69.

10-6The firm’s free cash flow is expected to grow at a constant rate, hence we can apply a constant growth formula to determine the total value of the firm.

To find the value of an equity claim upon the company (share of stock), we must subtract out the market value of debt and preferred stock. This firm happens to be entirely equity funded, and this step is unnecessary. Hence, to find the value of a share of stock, we divide equity value (or in this case, firm value) by the number of shares...

...How To Choose The Best StockValuation Method
When trying to figure out which valuation method to use to value a stock for the first time, most investors will quickly discover the overwhelming number of valuation techniques available to them today. There are the simple to use ones, such as the comparable method, and there are the more involved methods, such as the discounted cash flow model. Which one should you use? Unfortunately, there is no one method that is best suited for every situation. Each stock is different, and each industry sector has unique properties that may require varying valuation approaches. The good news is that this article will attempt to explain the general cases of when to use most of the valuation methods.
Two Categories of Valuation Model.
Valuation methods typically fall into two main categories: absolute and relative valuation models. Absolute valuation models attempt to find the intrinsic or "true" value of an investment based only on fundamentals. Looking at fundamentals simply mean you would only focus on such things as dividends, cash flow and growth rate for a single company, and not worry about any other companies. Valuation models that fall into this category include the dividend discount model, discounted cash flow model, residual income models and...

... 2.1 Background of the Studies
Valuation is the first step toward intelligent investing. When an investor attempts to determine the worth of her shares based on the fundamentals, it helps her make informed decisions about what stocks to buy or sell. Without fundamental value, one is set adrift in a sea of random short-term price movements and gut feelings.
Before we can value a share of stock, we have to have some notion of what a share of stock is. A share of stock is not some magical creation that ebbs and flows like the tide; rather, it is the concrete representation of partial ownership of a publicly traded company. If XYZ Corporation has 1 million shares of stock outstanding and we hold a single, solitary share, that means we own a millionth of the company.
There are some stockvaluation methods that we can use in valuing company’s stock. For instance: Discounted Cash Flow Model (DCFM), Dividend Discount Model (DDM) and Earnings Growth Model (EGM).DDM is the valuation method that we use in this paper.
2.2 Problem Statement and Objective
This research is mainly to value Public Bank Bhd stock through Dividend Discount Model (DDM).
2.3 Research Question
* What is the value of Public Bank Bhd stock?
* Is Public Bank Bhd stock a worth...

...[pic]
ASSIGNMENT #1
DUE ON SUNDAY, JUNE 24
NAME: SEC: ID: ______________
1. Intraco Co. has the following account balances for the end of the year Dec 31, 2010
|Selling and administrative salaries |$120,000 |
|Purchase of raw materials |280,000 |
|Direct labor |? |
|Advertising expense |50,000 |
|Manufacturing overhead |$250,000 |
|Sales commission |$55,000 |
Inventory balances at the beginning and end of the year were as follows:
| |Beginning of the year |End of the year |
|Raw materials |$50,000 |$9,000 |
|Work in process |? |$30,000...

...
Intrinsic StockValuation - Emerson Electric
Intrinsic StockValuation - Emerson Electric
In this cyber-problem, you will value the stock for Emerson Electric, a scientific and technical instrument company. While stockvaluation is obviously important to investors, it is also vital to companies engaging in a merger or acquisition. Here, the process of stockvaluation can often be quite subjective. Frequently, the opposing sides of a merger or acquisition will have vastly different opinions of a firm's value.
For example, in 1994, part of AT&T's purchase of Mc Caw Cellular called for AT&T to acquire Mc Caw's 52 percent stake in LIN Broadcasting and purchase the remaining 48 percent at its fair value. LIN'S advisors valued the stock at $162 a share, while AT&T estimated its value at $100 a share. The difference resulted in a whopping $1.6 billion. As this example demonstrates, stockvaluation seems to be both art and science.
In this cyber-problem, use the dividend growth model's constant growth assumptions to value Emerson's stock. In addition, you will apply the concepts of risk and return by estimating the stock's required return from the CAPM model. In order to arrive at a value for Emerson Electric, you will gather and use information from Yahoo!Finance...

...Valuation of Common Stock
Ashok Banerjee
Common (Equity) Stocks
• Because common stock never matures, today’s
value is the present value of an infinite stream of
cash flows (i.e., dividend).
• But dividends are not fixed.
• Not knowing the amount of the dividends—or
even if there will be future dividends— makes it
difficult to determine the value of common stock.
• So what are we to do?
Valuation Models
• Dividend Valuation Model (DVM):
– Constant dividend: Let D be the constant
DPS:
The required rate of return (re) is the return shareholders
demand to compensate them for the time value of money tied
up in their investment and the uncertainty of the future cash
flows from these investments.
Valuation Models
• Dividend growth at a constant rate (g):
(also known as Gordon Model)
OR
OR
Exercise 1
• You buy a stock for Rs.230 and you
expect the next year’s dividend to be
Rs.12.42. Furthermore, you expect the
dividend to grow at a constant rate of 8%
p.a.
– What is the expected return of the stock?
– What is the dividend yield?
– What is the expected price of the stock in five
years?
Dividend and Earnings Growth
• Growth in dividends occurs primarily as a result
of growth in EPS.
• Growth in earnings, in turn, results from a
number of factors, including (1) inflation, (2)
retention ratio; and (3) ROE.
•...

... * The capital structure of maruti Suzuki is drawn and subsequently the WACC is calculated taking cost of capital which has been calculated using CAPM model.
* Now, we apply the dividend discounting model to calculate the present value of the share;
The following data has been used:
Earnings per share, Dividend per share and Return on Equity
Earning retention ratio= 1- DPS/EPS
Growth rate= ROE*Earning retention ratio.
Dividend for next year= Dividend*Growth rate + Dividend.
P.V. of share price= Dividend for next year/(WACC-Growth rate).
* The present value of share comes out to be 1047.83, Which is lower than its current market price 1311.75, which indicates that the share has been overvalued.
Relative Valuation
The relative valuation has been conducted by comparing three companies from the same industry, with the Maruti Suzuki .
The following three companies have been considered:-
* Mahindra & Mahindra ltd.
* TATA Motors.
* Hindustan Motors.
Following Financial ratios have been calculated to make the comparison and the analysis is done from the comparison.
Current ratio: The current ratio of maruti Suzuki is 2.19, which is higher than the industry average (1.50), this indicates that maruti has been successfully increasing the value of its current assets and decreasing current liabilities. Also, Maruti Suzuki has the highest current ratio in the industry.
P/E Ratio: P/e ratio indicates the proportion of...

...Range: $50.99–
$111.81
Summary
Section4 –
Valuation
Reasons about using
FCF analysis
Computing FCFF from
Net Income and CFO &
Computing FCFE from
FCFF
Report Introduction
Nike is the largest footwear company in the world selling
footwear, apparel, equipment through 25,000 retailers. As a
stable, yet fast growing company, Nike is facing several
obstacles in its core section. In this report, we have done
thorough business analyses using Porter’s Five Force and
SWOT approach to get the fundamentals of market condition
where Nike stands. In the second step, we finished the
estimation of the investment value and risk of Nike by FCF, PE
Ratio and RIM. Finally, we give the recommendation of buy on
Nike’s share and the target price is $63.17.
Note: All the calculation formula and processes are listed in the
Appendix.
The company’s dividends policies are not stable every year,
sometimes Nike does not pay any dividends. In some years the
company pays dividends but the dividends paid differ
significantly from the company’s capacity to pay dividends.
Moreover, FCF align with profitability within a reasonable
forecast period with which the analyst is comfortable. Last, the
investor takes a control perspective in Nike company as well as
there was an M&A in year 20008.
Under the circumstances like this, we consider FCF models to
be more useful than DDM in practice.
Assumption:
There is no preferred stock in Nike.
...

...Equity Valuation: Discounted Cash Flow and Residual Income Models
Introduction
Valuation plays a very important role when companies are trying to increase their value, raise money, acquire another firm or sell a subsidiary, also when a company decides to go public.
Managers, investors and shareholders need to have the most accurate and reliable information in order to make decisions, that is why valuation is a fundamental exercise in corporate finance.
It is pretty evident that whatever the reason, sooner or later there will be a question of how much a firm is worth and very often the answer will not be easy.
Hamadi and Hamadeh (2012, p.104) claim that “determining firm’s value has recently become more problematic”.
Valuation is, indeed, a complicated task. It requires taking in consideration a variety of factors, making a number of assumptions and calculations and of course selecting the most appropriate valuation approach. Equity Valuation is the process of estimating the value held by a firm’s equity holders; it should not be confused with Enterprise Valuation, which is the total value of a firm. They are two different values from two different concepts. By having a clear understanding of it, we will be able to incorporate the appropriate cash flows and discount rates to our valuation analysis.
Analysis
Discounted Cash Flow Models...

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