Fin200 – PP – M5 M8

Part B: Stock Valuation (Week 5 Milestone)

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Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.

Format Table

 
Smith Company, Inc.
Competitor 1
Competitor 2
Competitor 3

Beta
1.4
1.7
1.2
0.9

Dividend
$2.00
$3.25
$2.00
$1.25

Price
$26.00
$33.00
$45.00
$20.00

Growth
3.5%
3.5%
5.5%
1.5%

Part C: Dividend Policy

Use the information provided to discuss the dividend policy of the four listed firms over the past four years.

Format Table

 
 
2018
2017
2016
2015

Smith Company, Inc.
 
 
 
 
 

 
Dividend
$2.00
$2.00
$2.00
$2.00

 
Net Income
$3,978,000
$4,931,000
$5,220,000
$5,652,000

Competitor 1
 
 
 
 
 

 
Dividend
$3.25
$0.75
$1.20
$1.00

 
Net Income
$6,111,000
$5,408,000
$5,576,000
$5,456,000

Competitor 2
 
 
 
 
 

 
Dividend
$2.50
$2.50
$2.00
$1.00

 
Net Income
$5,547,000
$5,160,000
$4,823,000
$4,637,000

Competitor 3
 
 
 
 
 

 
Dividend
$1.25
$0.55
$0.55
$0.55

 
Net Income
$4,543,000
$3,786,000
$3,711,000
$3,657,000

Part D: Analysis

You are working as a financial analyst. Your manager has asked you to prepare a presentation on whether Smith Company, Inc. is a good investment opportunity. Prepare a presentation, a minimum of one slide for each part, summarizing your results. You should submit either an Excel or Word document showing your work for each part

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