Stock Valuation

Part B: Stock Valuation (Week 5 Milestone)

Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.
Format Table

 Smith Company, Inc. Competitor 1    Competitor 2    Competitor 3

Beta 1.4 1.7 1.2 0.9
Dividend $2.00 $3.25 $2.00 $1.25
Price $26.00 $33.00 $45.00 $20.00
Growth 3.5% 3.5% 5.5% 1.5%
Part C: Dividend Policy

Use the information provided to discuss the dividend policy of the four listed firms over the past four years.
Format Table

     2018    2017    2016    2015

Smith Company, Inc.
Dividend $2.00 $2.00 $2.00 $2.00
Net Income $3,978,000 $4,931,000 $5,220,000 $5,652,000
Competitor 1
Dividend $3.25 $0.75 $1.20 $1.00
Net Income $6,111,000 $5,408,000 $5,576,000 $5,456,000
Competitor 2
Dividend $2.50 $2.50 $2.00 $1.00
Net Income $5,547,000 $5,160,000 $4,823,000 $4,637,000
Competitor 3
Dividend $1.25 $0.55 $0.55 $0.55
Net Income $4,543,000 $3,786,000 $3,711,000 $3,657,000
Part D: Analysis

You are working as a financial analyst. Your manager has asked you to prepare a presentation on whether Smith Company, Inc. is a good investment opportunity. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each part

Sample Solution