MT217 Finance Unit 6 Assignment Project

MT217 Finance Unit 6 Assignment Project - MT217 Finance...

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MT217 Finance Unit 6 Assignment Project Distinguished Scholar First view the prompt , then complete the Distinguished Scholar Project. Distinguished Scholar Project Pick a company that pays dividends, then calculate the expected growth rate of your company using the CAPM. Once this task is complete, calculate the expected growth rate using the Constant Growth (or Gordon Growth) Model. You may need additional information to complete this exercise. You can find a stock's beta and growth rate at http://quote.yahoo.com/ . Once there, enter the ticker for the company in question. Then, click on "Key Statistics" about halfway down the left hand side of the page. You can find the beta here. Alternatively, you can go to http://www.reuters.com/ .Click on News & Markets, the Stocks (Under Markets). Enter the ticker symbol for the company in question. Click on "Ratios" about halfway down the left hand side of the page. Submit your assignment to the dropbox. Unit 6 DS MT 217 Corporation - Solution 1. Pick a company that pays dividends, then calculate the expected growth rate of your company using the CAPM. Based on the assumptions that: Risk Free Rate = 4.00% Rf Market Return = 12.00% Rm We found the Beta of MT 217 Corp = 0.80 SO CAPM = Rf + Beta(RM - Rf) Part 1 of DS Assignment is use the CAPM to find the Required Rate of Return on MT 217 Corp. This will be the "r" value that is used in the CGM. 2. Once this task is complete, calculate the expected growth rate using the Constant Growth (or Gordon Growth) Model. Caclualte the Dividend Growth Rate of MT 217 for Constant Growth Model (CGM) We use actuall MT 217 history PV (\$1.29) Dividend paid in 2002 Negative so Excel can do the math FV \$1.63 Dividend Paid in 2008 n 6 PMT 0 Rate ? This will be the Dividend Growth Rate … = g Constant Growth Model PO=D1/r-g

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Dow Chemical Co. (DOW) Beta = 0.8 Assuming that: Rf = 4% Rm = 12% In 2001 Dow Chemical paid a dividend of \$1.29 per share, and in 2007 they paid \$1.63 per share, while the forecast for 2008 is 1.68 but since there is still some time left in 2008, we cannot base our calculations on the forecasted figures. Solution Using CAPM: R f = 4% R m = 12% Beta = 0.8 Since: ( ) E f m f R R R R β = + - Where RE is the Rate of Return on Stock 4 0.8(12 4) E R = + - R=4+0.8(12-4) = 10.4% Growth rate (g) = 3.98% (Please see the attached excel sheet for the calculations) 1 0 D P r g = - = \$1.68 0.104 0.0398 - = \$26.17 Accepted Answer  Company Wal Mart (Symbol: WMT) Beta= 0.25 Dividend Payout = 1.21
Current Stock Price = 50.56

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This note was uploaded on 08/03/2011 for the course MT 217 taught by Professor Finance during the Spring '11 term at Kaplan University.

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MT217 Finance Unit 6 Assignment Project - MT217 Finance...

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