Question

Merck & Co Ink (MRK)

Write a 1-2 page (approximately 500 words) paper on the following:

• Part A-Fundamental Valuation:
  1. Estimate a growth rate for your firm's Dividends per Share.
  2. Assume a 12.5% discount rate.
  3. Calculate an estimated value of a share of the stock using the constant-growth model (Eq. 8-6 in the textbook), also known as the Gordon growth model.
  4. Compare and contrast your valuation results with the current share price in the market.
  5. Respond to this question: What changes in the variables would be necessary in your valuation to best approximate the market valuation?
• Part B - Relative Valuation:
  1. Estimate a growth rate for your firm's Earnings per Share (EPS).
  2. Determine an applicable Price-Earnings (P/E) ratio for your firm in 5 years.
  3. Calculate an estimated value of a share of the stock in 5 years using the P/E ratio model (Eq. 8-10 in the textbook).
  4. Respond to this question: Would you characterize your stock as undervalued or overvalued? Explain.
  5. Respond to this question: Based on your valuations in parts A and B, would you invest in this stock? Explain.

Answer 1