Stock Valuation

In: Business and Management

Submitted By angelah
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Stock Valuation Using Online Data
The goal of this exercise is to use the discounted cash flow model to estimate the intrinsic value of a particular stock, to perform sensitivity analysis, and to determine whether a stock is currently undervalued, overvalued, or appropriately valued.
1.) Find an estimate of the risk-free rate by using www.bloomberg.com. Use the yield to maturity for 30-year U.S. Treasury bond. Hit the markets tab, click on link to government bonds. Be sure not to use the coupon rate.
The yield to maturity for the 30-year U.S. Treasury bond is 3.43 as of April 3, 2012 at 3:08 pm. | COUPON | MATURITY | PRICE/YIELD | PRICE/YIELD CHANGE | TIME | 30-Year | 3.125 | 02/15/2042 | 94-08+ / 3.43 | -1-28 / 0.104 | 15:58 |
2.) Value one share of Walgreen. Use the Yahoo! Finance site (Key statistics tab) to find the stock's beta and the next dividend paid (forward dividend). Be sure not to confuse the dividend with the dividend yield. Stock Price History | Beta: | 1.26 | Forward Annual Dividend Rate4: | 0.90 |
3.) Studies indicate that the market risk premium ranges from 4% to 8%. Assume a market risk premium of 6%. Using the data obtained in (1) and (2) use CAPM to determine the required rate of return for this stock.
Rf + B (Rm - Rf)
Required Return: 3.43 + 1.26 (6 – 3.43) = 6.67%
4.) Estimate the stock's future dividend growth rate. Go to the www.reuters.com website and click on markets and then stocks. Type in the name of Walgreens and select the New York stock exchange option. Now click financials. You want to estimate what you think the dividend growth rate (g) will be in the future. This will be an input into the constant growth model for stock valuation. If you look at the growth rates on the right hand side of the page, you will observe several different growth rates: sales, earnings and dividends. We could use the…...

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