Estimated Stock Price (Chapter 9)
Collect dividend data for your chosen firm and calculate the annualized dividend growth rate over an appropriate time period (typically 7 years) (see the section of Estimating Growth Rate for details). You will also haveD0as a result of collecting the data. You should also provide a table/graph/chart of your company’s dividends along with a presentation of the various growth rates that can be calculated. If your growth rate is less than the cost of equity (g rs, you should use the higher growth rate go only for a certain years(10 years), and then choose (and justify) a lower gone for perpetuity (for example, you can use the average growth rate of firms within the same industry or the U.S. GDP growth rate as the firm long-term growth rate).Remember that you have to calculate the annual dividend per share. For all projects, the long-term growth rate (gnin the text) should be at least several percentage points less than rs.
You should now have D0(the most recent annual dividend actually paid), the growth rate g, and rs. You can now plug these values into dividend discount model.CalculateP0, your estimate of today’s stock price/share of your company; and compare your estimate to the current market price; and discuss any difference.
Do Sensitivity Analyses (Lecture 8/Chapter 9)on how stock price changes with growth rate, beta, and cost of equity. You can use the growth rate estimated by financial analysts as a reference. Analysts publish growth rate estimates for most of the larger publicly owned companies.
4. Use the comparable company approach (P/E ratio, price/sales ratio, etc. Lecture 8/Chapter 9) to estimate your company’s stock price (or price range). How does it compare to the price you calculated earlier?