QUESTION 1 Mathews company requires all its analysts to use a two-stage DDM and the...
60.1K
Verified Solution
Link Copied!
Question
Finance
QUESTION 1
Mathews company requires all its analysts to use a two-stage DDM and the CAPM to value stocks. Using these models, Mathew has valued Nokia Company at $ 63 per share. She now must value Motorola Corporation.
Table 1: Valuation Information: December 2016
Nokia
Motorola
Beta
1.35
1.15
Market Price
$45
$30
Intrinsic Value
$63
Risk free rate
4.5%
Expected Market return
14.5%
Mathew estimates the following EPS and dividend growth rates for Motorola
First three years: 12% per year
Years thereafter: 9% per year
The 2016 dividend per share is $ 1.72.
Calculate the required rate of return for Smile White using the information in Table 1 and the CAPM. Show your work.
Estimate the intrinsic value of Smile White using the data above and the two-stage DDM. Show your work.
Recommend Quick Brush or Smile White stock for purchase by comparing each companys intrinsic value with its current market price. Show your working.
Describe one strength of the two-stage DDM in comparison with the constant growth DDM. Describe one weakness inherent in all DDMs.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
