1.Estimate future annual dividends, cash flows to shareholders in the next five years using the estimated firm’s five-year growth rate, or industry five-year growth, or the combination. After five years, assume firm growths at economy wide steady state growth rate (e.g., S&P 500 five-year growth rate) forever.
2. Estimate the beta of the firm and market risk premium (You may use the beta in Yahoo Finance and use the mean of annual market excess return (Rm-Rf) and risk free rate (Rf) in French’s webpage to proxy market risk premium). Then estimate expected return using CAPM.
This question was asked on Jan 16, 2013.
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