Use the dividend valuation model price on this stock

Assignment Help Financial Management

Reference no: EM131332607

Let’s assume that you’re thinking about buying stock in West Coast Electronics. So far in your analysis, you’ve uncovered the following information: The stock pays annual dividends of $5.00 a share indefinitely. It trades at a P/E of 10 times earnings and has a beta of 1.2. In addition, you plan on using a risk-free rate of 3% in the CAPM, along with a market return of 10%. You would like to hold the stock for three years, at the end of which time you think EPS will be $7 a share. Given that the stock currently trades at$62, use the IRR approach to find this security’s expected return. Now use the dividend valuation model (with constant dividends) to put a price on this stock. Does this look like a good investment to you? Explain.

Reference no: EM131332607

Questions Cloud

What is a critical value : "What is a critical value? How is the critical value determined? Are there differences between the standard normal table and the student t table when trying to determine the critical value? Explain."

Which would you choose and why is that the best fit : After your negotiation and transaction with Mr. Barker, you start to realize that this could be a lucrative business. Your mother has been bugging you for months to get rid of all of the other children's meal toys that you collected over the years..

Assuming straight-line amortization of the discount : (1) Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate. (2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount

Putting measurement to work : This exercise gives you the opportunity to develop a measurement strategy of your own. 1. Identify an area of the social sciences you know something about (aging, marriage and the family, crime and criminal justice, social problems, social class, a..

Use the dividend valuation model price on this stock : Let’s assume that you’re thinking about buying stock in West Coast Electronics. So far in your analysis, you’ve uncovered the following information: The stock pays annual dividends of $5.00 a share indefinitely. It trades at a P/E of 10 times earning..

Discuss aboiy the discipline process : To ensure you all understand when is discipline approach is appropriate and not appropriate, listed below are a few examples for you to consider. Before implementing a discussion about performance issues, management should always ensure that the r..

Determine the mean lead content obtained : Determine the mean lead content obtained within Lab 1 and Lab 2 in parts per thousand. Express your answer to the nearest hundredths place.

What is the total rate of return on bond : Consider a bond paying a coupon rate of 8.25% per year semiannually when the market interest rate is only 3.3% per half-year. The bond has two years until maturity. Find the bond's price today and six months from now after the next coupon is paid. Wh..

Enhanced and better performance of the corporation : Develop a research question that addresses one of the unknowns in the question: Positive interactions between the CEO and board members lead to enhanced and better performance of the Corporation.

User Account

All Pages