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Select a publicly-listed company on the ASX that has previously made dividend payments.
1. Select a publicly-listed company on the ASX that has previously made dividend payments. The selected company should not be classified by the ASX as a ‘Financial’, ‘Metals and Mining’ or ‘Utilities’ company.
2. Using appropriate historical data calculate a beta for the company you have selected. Compare your beta to those published by research houses (ie Morningstar etc) for your chosen company. Are the values different? Why?
3. Using the CAPM model determine an appropriate discount rate for your company. Use a market risk premium of 6.5% p.a. in your calculations..
4. Using a constant growth rate of 8% pa. (commencing immediately) in the constant dividend growth model, determine a current stock price for your company.).
5. Suppose that the previous dividend growth rate was only expected to apply for 5 years before reverting to a long-term growth rate consistent with the forecast inflation rate. Demonstrate the impact this would have upon your stock valuation.
6. Now disregard the previous growth forecasts. Using your own variables, determine a current stock price for the company that you think might represent something close to its fair value. Why do you believe the variables you have chosen give a more appropriate value than those used in questions 4 and 5? Discuss.I am having trouble figuring out numbers 5. and 6. Can someone please point me in the right direction so that I can figure this out?
