FINC390-1404A-01 Introduction to Corporate Finance
Task Name: Phase 5 Individual Project
Deliverable Length: See assignment detail
Details:
Weekly tasks or assignments (Individual or Group Projects) will be due by Monday, and late submissions will be assigned a late penalty in accordance with the late penalty policy found in the syllabus. NOTE: All submission posting times are based on midnight Central Time.
Key Assignment Final Draft
After engaging in a dialogue with your colleagues on stock valuation, you will now be given an opportunity to apply the principles and concepts that were presented in this Phase. You have been asked to visit credible a Web site that provides detailed information on publicly traded stocks and select one that has at least a 5-year history of paying dividends and 2 of its closest competitors.
To fill up the first table, you will need to gather information needed to calculate the required rate of return for each of the 3 stocks. You will need the risk-free rate that you used in Phase 3, the market return is calculated in Phase 1, and the beta that you should be able to find on the Web site.
Company
5-year Risk-Free Rate of Return
Beta (β)
5-Year Return on Top 500 Stocks
Required Rate of Return (CAPM)
To complete the next table, you will need the most recent dividends paid over the past year for each stock, expected growth rate for the stocks, and the required rate of return you calculated in the previous table. You will also need to compare your results with the current value of each stock and determine whether the model suggests that they are over or underpriced.
Company
Current Dividend
Projected Growth Rate (next year)
Required Rate of Return (CAPM)
Estimated Stock Price (Gordon Model)
Current Stock Price
Over/Under Priced
In the third table, you will be using the price-to-earnings ratio (P/E) along with the average expected earnings per share provided by the Web site. You will also need to compare your results with the current value of each stock to determine whether or not the model suggests that the stocks are over- or underpriced.
Company
Estimated Earning
(next year)
P/E Ratio
Estimated Stock Price (P/E)
Current Stock Price
Over/Under Priced
After completing the 3 tables, explain your findings and why your calculations coincide with the principles related to bonds that were presented in the phase. Be sure to address the following:
Explain the relationship observed between the required rate of return, growth rate, and the dividend paid and the estimated value of the stock using the Gordon model.
Explain the value and weaknesses of the Gordon model.
Explain the how the price-to-earnings model is used to estimate the value of the stocks.
Explain which of the 2 models seemed to be the most accurate in estimating the value of the stocks.
Based on the material you learned in this Phase, what would you expect to happen to the value of the stock if the growth rate, dividends, required rate of return, or the estimated earnings per share were to increase or decrease? Be sure to explain each case separately.
Note: You can find information about the top 500 stocks at this Web site.
Reference
S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
Be sure to document your paper with in-text citations, credible sources, and a list of references used in proper APA format.
Please submit your assignment.
For assistance with your assignment, please use your text, Web resources, and all course materials.
Course Materials
Course Materials
Points Possible: 200
Date Due: Sunday, Nov 09, 2014
Objective:
Demonstrate an understanding of the time value of money
Demonstrate the ability to perform interest rate calculations for single and multiple time period cash flows.
Demonstrate the ability to calculate the future value and present value of annuities.
Demonstrate the ability to value plain vanilla bonds.
Demonstrate the ability to value plain vanilla stocks.
Submitted Files: Submit Task
Score: N/A
Instructor Comments: No comments have been made
