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1. Using the Constant growth model with a market return of 8% and 12%, prepare the...

1. Using the Constant growth model with a market return of 8% and 12%, prepare the valuation. (Value of stock = next years dividend/(required rate of return –dividend growth rate)

2. Is the stock over or under valued? Compare the market price to the value from the dividend discount model.

3. What is the expected return using the CAPM model?

4. Prepare a time series ration analysis (liquidity, activity, debt, and profitability).

This is stock on the stock market so the information is at yahoo.finance.com

I need help understanding the equations to find the answers. This is all the information I have. I also do not know if the dividend growth rates are correct?

Closing Price Per Share One Year Value of Stock
Company Symbol Beta 2/3/18 Next Years Dividends Required Rate of Return Dividend Growth Rate 8% 12%
Lockheed Martin LMT 0.63 $352.66 $8.00 8.00% 12.00% 0.07
Summit Midstream Partners SMLP 1.79 22.25 2.3 0.08 0.12 0
JP Morgan JPM 1.33 114.28 2.24 0.08 0.12 0.06
Apple AAPL 1.31 160.5 2.52 0.08 0.12 0.02
PulteGroup, Inc PHM 0.92 30.7 0.36 0.08 0.12 0

Solutions

Expert Solution

Stock price= next year dividend/(required return-growth)

2) At 8% required return

Lockheed martin is undervalued

Summit is undervalued

JP morgan is over valued

Apple is over valued

Pultegroup is overvalued

At 12%

Lockheed martin is overvalued

Summit is overrvalued

JP morgan is overvalued

Apple is over valued

Pultegroup is overvalued

3)using capm model

=Riskfree+(beta*(market return-riskfree))

Assume risk free=2%

jeff jeffy answered 2 years ago
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