1.Eli Lilly (LLY): The following table contains historical dividends and free cash flows for the company.

Dividend Model:Calculate the growth in dividends and the average growth in dividends. Use this as your estimate of future dividend growth. Use 2019 dividend as D_0.Use 8% as your stockholder rate of return (r_s) estimate. Calculate the value of the stock.

FCF Model:Calculate the TVM growth rate. You will not use this number. Instead, use 3% as your g assumption. Use a discount rate of 6%. Use the average of all FCFs as your FCF₀. The debt for this company is $17,224.2 and the number of shares is 906.6M. Find the value of one share of stock.

Calculate rs = (D1/P0) + g:The current stock price is $131.92. Use this stock price to calculate your expected rate of return using the dividend model assumptions.

CAPM Model: The stock beta is .19. Use beta to calculate the rate of return. Assume the risk free rate is 1% and the market risk premium (rm-rf) is 7%.

LLy. DIV FCF

2015 2.0 2975

2016 2.04 2967

2017 2.08 2260

2018 2.25 691

2019 2.58 5120

2.For Adobe Systems (ADBE), you only have FCF, no dividends.

CAPM Model:The stock beta is .97. Use beta to calculate the rate of return. Assume the risk free rate is 1% and the market risk premium (rm-rf) is 7%.

FCF Model:Calculate the TVM growth rate. You will not use this number. Instead, use a growth rate of 6%. Use a discount rate of 7%. Use the average of all FCFs as your FCF₀. The debt for this company is $4,726M and the number of shares is 479.7M. Find the value of one share of stock.

Their previous stock price is $455.53

adobe fcf

2015 1409

2016 1764

2017 2324

2018 3038

2019 3229