20 Mar Fin200 – PP – M5 M8
Part B: Stock Valuation (Week 5 Milestone)
- Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.
Format Table
| Smith Company, Inc. | Competitor 1 | Competitor 2 | Competitor 3 | |
| Beta | 1.4 | 1.7 | 1.2 | 0.9 |
| Dividend | $2.00 | $3.25 | $2.00 | $1.25 |
| Price | $26.00 | $33.00 | $45.00 | $20.00 |
| Growth | 3.5% | 3.5% | 5.5% | 1.5% |
Part C: Dividend Policy
- Use the information provided to discuss the dividend policy of the four listed firms over the past four years.
Format Table
| 2018 | 2017 | 2016 | 2015 | ||
| Smith Company, Inc. | |||||
| Dividend | $2.00 | $2.00 | $2.00 | $2.00 | |
| Net Income | $3,978,000 | $4,931,000 | $5,220,000 | $5,652,000 | |
| Competitor 1 | |||||
| Dividend | $3.25 | $0.75 | $1.20 | $1.00 | |
| Net Income | $6,111,000 | $5,408,000 | $5,576,000 | $5,456,000 | |
| Competitor 2 | |||||
| Dividend | $2.50 | $2.50 | $2.00 | $1.00 | |
| Net Income | $5,547,000 | $5,160,000 | $4,823,000 | $4,637,000 | |
| Competitor 3 | |||||
| Dividend | $1.25 | $0.55 | $0.55 | $0.55 | |
| Net Income | $4,543,000 | $3,786,000 | $3,711,000 | $3,657,000 |
Part D: Analysis
- You are working as a financial analyst. Your manager has asked you to prepare a presentation on whether Smith Company, Inc. is a good investment opportunity. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each part
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