Analysis Questions of Stock Valuation The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock?
Analysis Questions of Stock Valuation The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Particulars
АВС
XYZ
1. Discount rate
18.5%
14.25%
Not
2. Historical growth rate 2.2218%
available
3. Sustainable growth
4.5%
20%
rate
4. Fundamental value of
stock using dividend
growth model through
historical growth rate
5. Fundamental value of
stock using dividend
growth model through
sustainable growth rate
6. Fundamental value of
stock using residual
income growth model
through historical growth
rate
Not
364.22
available
Not
432.92
available
Not
427.30
available
7. Fundamental value of
stock using residual
income growth model
through sustainable
growth rate
420.35 1662.60
Transcribed Image Text:Analysis Questions of Stock Valuation
The "stock valuation model" referred to in the questions below relate to the whether
the fundamental value is estimated with the dividend growth model or the residual
income model, AND whether the growth rate is estimated with the historical growth
rate or the sustainable growth rate. These estimates of the fundamental value are in the
last four rows of the table above.
Suppose the current price of ABC stock is as given in the table above, and the current
price of XYZ stock is as given in the table above.
1. Assume dividends will continue to grow at the same rate for ABC stock.
a. Explain which stock valuation model(s) you would choose?
b. Given the current price, should you buy or sell ABC stock?
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