PLEASE ANSWER PART A AND PART B – SCROLL DOWN TO SEE ENTIRE PROBLEM Part A-Funda
ID: 2740435 • Letter: P
Question
PLEASE ANSWER PART A AND PART B – SCROLL DOWN TO SEE ENTIRE PROBLEM
Part A-Fundamental Valuation: Company is Apple-Below are the dividends/dates Estimate a growth rate for your firm's Dividends per Share. Assume a 12.5% discount rate. Calculate an estimated value of a share of the stock using the constant-growth model also known as the Gordon growth model. Compare and contrast your valuation results with the current share price in the market. Respond to this question: What changes in the variables would be necessary in your valuation to best approximate the market valuation?
Date
Dividends
5/5/2016
0.57
2/4/2016
0.52
11/5/2015
0.52
8/6/2015
0.52
5/7/2015
0.52
2/5/2015
0.47
11/6/2014
0.47
8/7/2014
0.47
5/8/2014
0.47
2/6/2014
0.43571
11/6/2013
0.43571
8/8/2013
0.43571
5/9/2013
0.43571
2/7/2013
0.37857
11/7/2012
0.37857
8/9/2012
0.37857
11/21/1995
0.00429
8/16/1995
0.00429
5/26/1995
0.00429
2/13/1995
0.00429
11/18/1994
0.00429
8/15/1994
0.00429
5/27/1994
0.00429
2/7/1994
0.00429
11/19/1993
0.00429
8/16/1993
0.00429
5/28/1993
0.00429
2/12/1993
0.00429
11/30/1992
0.00429
8/17/1992
0.00429
6/1/1992
0.00429
2/14/1992
0.00429
11/18/1991
0.00429
8/19/1991
0.00429
5/20/1991
0.00429
2/15/1991
0.00429
11/16/1990
0.00429
8/20/1990
0.00393
5/21/1990
0.00393
2/16/1990
0.00393
11/17/1989
0.00393
8/21/1989
0.00357
5/22/1989
0.00357
2/17/1989
0.00357
11/21/1988
0.00357
8/15/1988
0.00286
5/16/1988
0.00286
2/12/1988
0.00286
11/17/1987
0.00286
8/10/1987
0.00214
5/11/1987
0.0021
Part B - Relative Valuation: Estimate a growth rate for your firm's Earnings per Share (EPS). Determine an applicable Price-Earnings (P/E) ratio for your firm in 5 years. Calculate an estimated value of a share of the stock in 5 years using the P/E ratio model.Respond to this question: Would you characterize your stock as undervalued or overvalued? Explain. Respond to this question: Based on your valuations in parts A and B, would you invest in this stock? Explain.
Growth Estimate
SHW
Industry
Sector
S&P 500
Price/Earnings
(avg for comparison
11.31
15.04
7.31
18.27
Next 5 Years (per annum)
9.23%
8.25%
16.05%
7.42%
Date
Dividends
5/5/2016
0.57
2/4/2016
0.52
11/5/2015
0.52
8/6/2015
0.52
5/7/2015
0.52
2/5/2015
0.47
11/6/2014
0.47
8/7/2014
0.47
5/8/2014
0.47
2/6/2014
0.43571
11/6/2013
0.43571
8/8/2013
0.43571
5/9/2013
0.43571
2/7/2013
0.37857
11/7/2012
0.37857
8/9/2012
0.37857
11/21/1995
0.00429
8/16/1995
0.00429
5/26/1995
0.00429
2/13/1995
0.00429
11/18/1994
0.00429
8/15/1994
0.00429
5/27/1994
0.00429
2/7/1994
0.00429
11/19/1993
0.00429
8/16/1993
0.00429
5/28/1993
0.00429
2/12/1993
0.00429
11/30/1992
0.00429
8/17/1992
0.00429
6/1/1992
0.00429
2/14/1992
0.00429
11/18/1991
0.00429
8/19/1991
0.00429
5/20/1991
0.00429
2/15/1991
0.00429
11/16/1990
0.00429
8/20/1990
0.00393
5/21/1990
0.00393
2/16/1990
0.00393
11/17/1989
0.00393
8/21/1989
0.00357
5/22/1989
0.00357
2/17/1989
0.00357
11/21/1988
0.00357
8/15/1988
0.00286
5/16/1988
0.00286
2/12/1988
0.00286
11/17/1987
0.00286
8/10/1987
0.00214
5/11/1987
0.0021
Explanation / Answer
A)
B) for SHW EPS in 5 years=11.15*(1.0923)^5=17.3374 (11.15 is eps for most recent year)
P/E shall converge to industry average of 15.04 in 5 years therefore the value after 5 years
=15.04 *17.3374
=260.75
Year 2015-16 2014-15 2013-14 2012-13 1995-2012 1990-1995 1989-90 1988-89 1987-88 growth rate 9.62% 10.64% 7.87% 15.09% 22.59% 0% 9.16% 9.16% 24.83% (=(.57/.52)-1) (=(.52/.47)-1) (=.47/.43571-1) (=.43571/0.37857-1) (=(0.37857/0.00429)^(1/22)-1) (0.00429/0.00429-1)) (0.00429/.00357-1)) (=0.00429/0.00393-1) (=(0.00357/0.00286)-1)Related Questions
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