Using the dividend discount model, determine the implied long run growth rate of the firm from its stock price and its expected rate of return as implied by the capital asset pricing model..
This week, you will attempt to justify the market value of a publicly-traded firm by investigating the equity value of the company. Using the dividend discount model, determine the implied long run growth rate of the firm from its stock price and its expected rate of return as implied by the capital asset pricing model. Then, using all that you have learned in the class to this point, evaluate whether the implied growth rate is reasonable or not. Assume that you were not hired last week after making your presentation to the board. This was not because your presentation was bad. Instead, the day after your presentation the company was indicted by the SEC for financial statement manipulation. Fortunately for you, one of the board members (who had nothing to do with the accounting oversight of the company) was so impressed with your presentation that she has recommended you for the CFO position at another company. This company has asked you to prepare a comprehensive report that evaluates the company’s current market valuation. There are several parts to this assignment. Be sure to carefully follow all of the instructions in each part. Part I: Choose another company (similar to the way you chose a company for Week 3). This company must be in a different industry from the company you previously chose, and the company must be publicly traded (i.e., you must be able to find the company’s current stock price). Find and read the company’s most recent annual report. Write about three paragraphs describing the company. Discuss the company’s line of business, products and/or services offered, time the company has been in operation, and main location. Discuss any other aspects of the company that you believe are particularly interesting about the company. Part II: Assess the company from a microeconomic point of view. Discuss the demand characteristics for the company’s product or service (e.g., the company’s customers, competition, etc.), the company’s cost structure (e.g., degree of variable cost versus fixed costs), and the nature of the industry (highly competitive, somewhat competitive, oligopoly, or monopoly). Discuss any other microeconomic factors that you believe are relevant to the company. Part III: Evaluate the current macroeconomic situation in the U.S. Do economists seem to believe we are in a recession, period of slow growth, or in an economic boom? What is the projected growth rate for the economy over the next year? Are there any current proposals by the President or Congress (that seem like they may be enacted) that will affect the future of the economy, and might influence the company? If so, what and how might they affect the company? Part IV: