________________________________________ I was wondering if someone could show m

Question

________________________________________I was wondering if someone could show me the steps to take on this assignment.Can this be answered using the FCF method? I feel completely clueless. I have no idea how to apply these steps. I did find the current treasury rate and the beta for Zoetis Inc. I hope this helps. Any help is appreciated!! 1. obtain the most recent 10-year Treasury yield rate as the risk-free rate; (10-year Treasury yield down 2 basis points to 1.574%) 2. Go to either Yahoo Finance or Google Finance to obtain the selected firm’s current beta ( or beta coefficient); (1.05) 3. Assume the expected market return is 10%; 4. Use the capital asset pricing model (CAPM) to calculate the required rate of return for equity financing purposes; 5. Make a realistic assumption about the g growth rate (g) and apply either a) the dividend growth model or b) nonconstant dividend growth model equity valuation methods to calculate the intrinsic value of the firm. (Note: If using the nonconstant growth model you must show a minimum of 5 years of future cash flows or future dividends);

Explanation / Answer

Risk free rate 1.574% Beta 1.05 Market Return 10% Expected return (CAPM) = Risk free rate+Beta*(Market rerurn-risk free return) = 1.574+1.05*(10-1.574) = 10.42 Reuired rate of return is 10.42% Assumed that growth rate is 5% for infinity. Assumed dividend paid in the current period(Do) = $ 5 Intrinsic value of the firm = D0*(1+g)/Ke-g = 5*(1+.05)/(.1042-.05) = $    96.86 Thus, intrinsic value of share of firm is $ 96.86 Note: Assumption for growth rate taken. But, nothing said abuot dividend , we do not have any detail about dividend which is necessary to calculate intrinsic value of firm. So, we have to take assunption about dividend also.

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