Vanilla Bonds

If earnings' growth rates are often used as estimated of dividend growth rates. However, these forecasts

Therefore, the cost of common stock is obtained by using the dividends divided by the market price.

Capital Gains Yield: I was able to find the stock prices by multiplying the P/E ratio times EPS, both of which are found in exhibit 6. g = 1.90%

For g, we are given that the dividend has grown from $0.82 to $1.20 in four years. We use the compound interest formula to get the growth rate

We just need to plug in the numbers in the formula to get our CAPM.

Also, the WACC of our company is always around 5.5%, we can use Monte Carlo Simulation to run the estimation of Equity value by changing WACC, growth rate and COGS/Revenue each year. The random calculation displays as the full report in attachment.

• Pe = D1/(re – g) = 700 / (0.11 – 0.05) = $11,667 • price per share = $11,667 / 1,000 = $11.67 3. Same facts as (2) above, except the 5% income growth rate (and beginning of year common equity to support it) are only expected for years 2 and 3. Then growth is expected to be zero and all income is expected to be distributed to shareholders for all future years. a. Compute D1, D2, D3, and Dt for all future years. • Keeping in mind that income is $1,100 in year 1, increases by 5% in years 2 and 3, and then remains constant for all future years; and keeping in mind that beginning of year 1 common equity is $8,000, increases by 5% at the beginning of year 2 and at the beginning of year 3, but does not increase at the beginning of year 4 and remains constant from that point forward, you should be able to compute: D1 = $700, D2 = $735, and Dt = 1,212.75 for D3 and all future years. b. Use the dividend discount (i.e., free cash flow to equity investors) valuation model to estimate the company’s current stock price. Pe = 700/(1+ 0.11) + 735/(1+ 0.11)2 + [1,212.75/0.11]/(1+ 0.11)2 = $10,175.31 and the price per share of common stock = $10,175.31 / 1,000 = $10.18. 4. Same facts as (3) above, except the growth rates are 5% for years 2 and 3 and then 3% perpetually for all future years. a. Compute D1, D2, D3 and the growth in D for all future years. • Keeping in mind that income is $1,100 in year 1, increases by 5% in years 2

After considering the operational improvements forecasted, we project Robertson’s free cash flows and compute the terminal value using the Gordon Growth Method; the implied share price is analyzed further in accordance to growth rate and discount rate.

Introduction. This paper discusses the value of a one-year Cardinal Health bond. The approximate value of such a bond is determined, reflecting knowledge of time value of money, and the bond's value is discussed in relation to the operating statistics of the company. There is also discussion of competitor's similar bonds and the relative value of those compared with the Cardinal bond.

CAPM).According to this table, we find that the net income increase from 24.442 to 70.221 in 2005 and 2010, the share price increase from 5.81 to 58.80 in 2005 and 2010 as well. According to the calculation of P/E ratios for ICC in these years are higher than the average annual P/E ratio, which means that the company overpricing his share price. Obviously, the dividend payout ratio at the same time appear in city is filled with the molecular formula with the denominator. At the molecular, dividends payout ratio, the bigger the current dividend level higher, the greater the P/E ratio; But in the denominator, dividends payout ratio, the bigger the dividend growth rate is lower, the smaller the P/E ratio. So, with P/E and the relationship between the dividends payout ratio is uncertain.

Using the same market risk premium and risk free rate (5.5% & 4.62% respectively) given in the case, the averaged beta of 1.40, the pretax cost of debt of 7.65%, and the weighted average of debt & equity, the products & systems

The standard method of calculating a stock price using the perpetual dividend growth model is done by assessing a company’s dividend one year into the future adding the future expected growth rate. The formula is written as: P0 = D1/(Ke − g), where Ke is the investor required return, D1 is next year’s dividend and g is the

This is the first in a series of primers on fundamental valuation topics such as

Jay.R Ritter in his research said that the main reason for a negative correlation between the two factors, according to him during high growth rate periods markets usually assign a high price/Earning and price to dividend multiples and which then lowers the realized returns because now more capital is required from the investors to in order to receive the same level of earning s and dividends from stocks.

*We calculated the cash flows of the firm and discounted them by our WACC, which was roughly 16%. We used a terminal growth rate of 6% (Exhibit 1)