Finance Class Assignment- Need It Done in 5 hours or less for $20
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usw1_wmba_6070_projectscourseweek4example_1.docxWeek Four Application Assignment
As a manager, it is important to understand how decisions can be analyzed in terms of alternative courses of action and their likely impact on a firm's value. Thus, it is necessary to know how stock prices can be estimated before attempting to measure how a particular decision might affect a firm's market value.
To prepare for this Assignment, choose a publicly-traded company, and then estimate your company's common stock price, using one of the valuation models presented in the assigned readings or outside readings. (If you want to analyze a dividend paying company, you can find a robust list at http:/www.dividenddetective.com/big_dividend_list.htm .)
Defend your choice of model, and explain why it is appropriate to use for your company's stock. Be sure to explain how you arrived at any assumptions regarding values used in the model. Determine whether your company appears to be correctly valued, overvalued, or undervalued based on your company's stock current price and model result. Check Yahoo Finance for current stock prices. Finally, explain why your company's stock appears to be over-, under-, or correctly valued.
Below is an example. You have to select another stock and go through the process I have shown above. I posted information on stock valuation in Discussions. Study text readings and Weekly Dashboard supplementary information and provide reasons for overvaluation or undervaluation of your chosen stock. Address all questions for this assignment in your explanation. Include key figures in explanation and show calculations in Appendix. Show citations & references.
I chose Pfizer (PFE). I then went to finance.yahoo.com where I entered PFE in the Search Finance slot. Below is the information I received:
Pfizer Inc. (PFE)
NYSE
$34.25 Mar 20, 4:02PM EDT
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Beta: |
0.89 |
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P/E (ttm): |
24.09 |
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EPS (ttm): |
$1.42 |
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Div & Yield: |
$1.12 (3.30%) |
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Use the 10-year Treasury bond rate for the riskfree rate of return = 1.93% at www.cnbc.com or search at google.com S&P 500 Index return can be used for the market return = 11.93%. Check google.com for 2014 return. r = 1.93% + [0.89 (11.93% - 1.93%)] = 1.93% + 8.90% = 10.83% Do = $1.12 – the dividend for last year g = retention ratio x ROE Payout ratio and ROE for Pfizer are given under Key Statistics in cnbc.com or finance.yahoo.com retention ratio = (1 – payout ratio) = (1 – 0.73) = 0.27 = 27%. Payout ratio was given in finance.yahoo.com ROE = 12.30% (given) g = 0.27 x 12.30% = 3.32%. As a decimal, g = 3.32/100 = .0332 Po = [Do(1+g)]/(r-g) = [$1.12(1+.0332)]/(10.83% - 3.32%) = ($1.12 x 1.0332)/(.1083 - .0332) = 1.1572/.0751 = $15.48 Compare Po to current market price of $34.25. If the intrinsic value is the fair value based on assumptions of constant growth in dividends, the current market price shows overvaluation of Pfizer stock. Study text readings and Weekly Dashboard supplementary information and provide reasons for overvaluation or undervaluation. This is an example. You have to select another stock and go through the process I have shown above. Address all questions for this assignment in your explanation. Include key figures and show calculations in Appendix. Show citations & references. |
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