For these problems, use any web service that provides financial information. Good examples are Yahoo! Finance, Hemscott, Reuters and FT.com. You can also go to the company’s website and download financial accounts from there. Get used to accessing financial websites as it is a basic skill required by all financial managers.
1. Dividend Discount Model Choose any large company from your country and download its most recent statement of financial position and income statement. Using the financial figures in the accounts, calculate the sustainable growth rate for your company. Now go to Yahoo! Finance or any other financial website and find the closing share price for the same month as the financial accounts you used. What is the implied required return on your company according to the dividend growth model? Does this number make sense?
Why or why not?
2. Growth Opportunities Assume that investors require an 8 per cent return on the company you have studied in Question 1. Using this share price and the EPS for the most recent year, calculate the NPVGO for your company. What is the appropriate PE ratio for your company using these calculations? What is the PE ratio on Yahoo! Finance? Can you explain the difference, if any?