This morning, you arrived at your job as Head of Client Advisory Services for a major investment

Question:

This morning, you arrived at your job as Head of Client Advisory Services for a major investment firm and received a distressing phone call. Mrs. Smith, one of your best clients, who just happened to become your mother in law shortly after her retirement, has passed away. As the investment expert in the family, it will be your task to values Mrs. Smiths substantial estate, which consists mostly of stock investments which you have recommended. Making your task complicated is the fact that following your advice, Mrs. Smith has invested mostly in companies whose stocks are not publicly traded or listed. As a matter of fact, most of Mrs. Smiths investments are in companies headed by some of your college buddies. Mrs. Smiths portfolio consists of the 10 stocks described below. Your task is to value each individually and aggregate the values to come up with the total value of Mrs. Smiths estate. As one of the heirs, you are highly motivated to come up with the correct valuation.

1. 2,000 shares of The Chug-Chug Breweries Co. which just paid a dividend of $1.95 per share. The dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors require an 11 percent return on This companys stock.

2. 1,500 shares of Aqua-Pedic Mattress Corporation that will pay a $3.04 per share dividend next year. The company pledges to increase its dividend by 3.8 percent per year indefinitely. Investors require an 11 percent return on this investment.

3. 500 shares of Big Bang Inc. paying a constant $9.75 dividend. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. Investors required return on this stock is 10 percent.

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...