Finc 351 and 440 Week 4

Finc 440:

Discussion Question:

1. Estimating Growth –

The textbook (Chapter 11 – first page) explains that there are three ways to estimate growth rates for earnings, revenues, and dividends.  These include (1) the growth rate of the firm’s past earnings, (2) obtain the information from analysts, and (3) estimate the rates from the firm’s fundamentals.  Using each of these methods, what is your estimate of the growth rate for the company that you elected to study?

 2. Estimating Terminal Value –

Analysts normally must calculate a terminal value of a firm when preparing a discounted cash flow valuation.  The textbook (Chapter 12 – first two pages) explains that there are three ways to prepare this estimate, which include (1) assuming a liquidation value of the firm’s assets in the terminal year, (2) applying a multiple to earnings, revenues or book value, and (3) assuming the free cash flows will grow at a constant rate forever (a stable growth rate).  Using each of these methods, what is your estimate of the terminal value for the company that you elected to study?

 3.  Present Dividend Discount Model Valuation –

Post the results of the Dividend Discount Model Valuation that you prepared for this week’s assignment that is to be submitted to the Gradebook (see instructions below).

 4. Most Important Things Learned –

What are the most important things you learned from the study of this week’s readings and assignments?

Assignments:

(The company chosen is Nordstrom Inc)

(The attached excel document is an example to be used for this assignment along with a written portion)

1. Dividend Discount Model Valuation - Using the constant growth dividend discount model formula prepare a valuation estimate of the common stock of the company that you selected.  What are your findings?

 2. What are the principal assumptions used in the analysis?  How do you defend them?

 3. How does the estimated intrinsic value compare to the current market value of the stock?  What explains the difference?

 4. Do you believe that the dividend discount model is a useful approach to valuation?  Why or why not?

Finc 351:

Discussion:

Visit your local public library and observe the risk management tactics used by the facility.