Prepare a Fundamental Valuation Analysis of your stock
For the stock which you have selected, prepare a Fundamental Valuation Analysis of your stock. The purpose of this assignment is to illustrate the process of placing a value on a common stock. This assignment is due by Thursday, November 12, 2020. Include in your summary:
A.Valuation Analysis – Using the Dividend Valuation Model to Determine the Current Price — Using the approach shown in class (refer to the Tables and accompanying notes for Chapter 10A), determine the justified price (economic value) for your common stock. For your analysis, organize the presentation of your results in the following manner:
1.Prepare a table similar to the one shown in class in which you present, for your stock, Value Line’s growth rates in EPS and DPS for the past 10 years, the past 5 years, and the predicted 5 years. Also provide in the table the current year’s estimated (2019) EPS and DPS as shown in the Value Line report for your stock. Also present Value Line’s estimates of next year’s (2020) estimates of EPS and DPS, along with your calculated one-year estimated growth rates in EPS and DPS.
2.Calculate the required return for your stock using the approach shown in class and using the Ibbotson long-run return data. For the market risk premium value in the CAPM calculation of K (return on the market minus the risk-free rate), use .06 (6.00%) that is the long-run average difference between the return on the S&P 500 and the average return on the long-term Treasury bond. For the risk-free rate in the equation, use the current (as of Sunday, 11/01/2020) yield on the 30-year Treasury bond. This yield was .0164 (1.64%). In the calculation of your k-value, compute the required return two ways: (1) first, using Value Line’s beta value, and (2) second, using the beta value given for your firm at the Yahoo finance website. Discuss the implications of your results as it pertains to the importance of the calculation of beta.
3.Using your two computed k values, compute the value (price) of your stock using the approach (see above discussion) shown in class by calculating the expected price of your stock 5 years from now and then discounting it back to the present. Calculate the present price using two different K values – one that uses Value Line’s beta value for your company and the other, which uses Yahoo Finance’s beta.
4.Compare your valuation results with the current price of the stock (for this purpose, use the closing price of your stock as of Monday, November 2, 2020.
5.Discuss your results and the implications of any assumptions that you employed in the valuation of your stock.
6. Please turn in your Project and a copy of the Value Line Report for your company.
