Reference no: EM132755444
Wilbur and Orville are brothers. They're both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the dividend valuation model. Orville prefers the free cash flow to equity valuation model. As it turns out, right now, both of them are looking at the same stock-Wright First Aerodynamics, Inc. (WFA). The company has been listed on the NYSE for over 50 years and is widely regarded as a mature, rock- solid, dividend-paying stock.
The brothers have gathered the following information about WFA's stock:
Current dividend (Do) = $3.10/share
Current free cash flow (FCF ) = $1.5 million
Expected growth rate of dividends and cash flows (g) = 8%
Required rate of return (r) = 11%
Shares outstanding = 450,000 shares
Problem 1: How would Wilbur and Orville each value this stock?
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