Group 1_Data Case Chapter 9 - GE

Group 1_Data Case - Chapter 9 Data Case Group 1 CostofEquity WACC 10.50 12.00 7.50 3 Currentstockprice Payoutratio Expectedgrowthrate 17.77 0.56

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Chapter 9 Data Case - Group 1 All numbers exce GE- General Electricity Cost of Equity 10.50% Return On New Investment 12.00% WACC 7.50% 1 Current stock price 17.77 Current divident amount  0.56 2 Share of stock outstanding  10,650,000  Pay out ratio  40% 3 Expected growth rate  13.27% 4 Please refer to the next worksheet "GE Financials" 5. Determine the stock value based on the divident-discout model: a Time line 0 1 Year 2010 2011 b Divident amount  0.56  0.63  c Long term growth rate  7.20% d Stock price in year 5 e Present value $0.57  Current stock price  $24.77  6. Determine the stock value based on the discounted free cash flow model: 3 years average EBIT/Sales  0.24  Tax Rate   0.11  Property Plant and Equipment/ Sales  0.53  Depreciation/ Property Plant and Equipment  0.12  Net Working Capital/Sales  0.02  b Time line 0 1 Year 2010 2011 c Forecasted future sales 156,783,000  177,588,104  d Forecast EBIT  42,967,265 
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Property Plant and Equipment 103,323,000  94,599,084  Depreciation  11,474,400  Net Working capital 277,656,000  4,238,278  e EBIT * (1-T)  38,446,959  Plus: Depreciation  11,474,400  Less: Capiture Expenditure  (8,723,916) Less: Increase in Net working capital  (273,417,722) Forecasted Free cash flow  332,062,996  f Horizon enterprise value in year 5 g PV of FCF  308,895,810  Enterprise Value  575,102,185  Cash 72,260,000 Debt 471,269,000 Stock price $16.53  7. Compare the stock price from two method to the actual stock price and recommendatio The stock price based on the discouted free cash flow method ($16.53) is lower than The stock price based on the divident-discount model ($24.77) is higher than the act Base on the calculation, I suggest that Client should buy the GE stock because the P 8. Explainantion about the difference between the two valuation methods. The divident-discout model values the stock based on a forecash of the future divide requires forecasting the firm's earnings, divident payout rate and future share count expenses and the firm's share count and divident payout rate depend on whether th repurchase shares. Borrowing and repurchase decision are at management's discre
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This note was uploaded on 07/16/2011 for the course FIN M0110 taught by Professor Kwak during the Spring '11 term at Delaware State.

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Group 1_Data Case - Chapter 9 Data Case Group 1 CostofEquity WACC 10.50 12.00 7.50 3 Currentstockprice Payoutratio Expectedgrowthrate 17.77 0.56

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