(6. Construct a graph of the Security Market Line given by the parameters in #5. Point out the SML returns you calculated in #5 on your SML. Also, find and plot Disneys and Netflixs expected returns from the information given below gathered from their recent Yahoo Finance stock quotes against each stocks beta on your SML graph. Would you recommend buying Disney and/or Netflix based on this information? Explain your answers. Note: you are evaluating each stock individually, not in comparison in one another. Stock Disney Netflix Current Price $113.85 $317.30 Estimated Price 1 year from now $120.49 $398.27 Annual Expected Dividend (D1) $1.72 $0.00 )

7. Lets assume Disney is a variable growth stock with an expected annual growth rate in dividends of 20% in year 2, 18% in year 3 and 12% in years 4 and 5 and a constant annual growth rate of 9.5% after year 5. What is your valuation of Disneys stock today using the variable growth dividend discount model? Would you recommend buying Disneys stock today and why? Use current price in #6 to help aid your recommendation. 3

8. Now, assume that Disneys current price is in equilibrium and is a constant growth stock. What is Disneys expected constant growth rate based on your CAPM return? Use price and dividend data from #6.

9. Netflix doesnt pay dividends at the moment. The Corporate Valuation model is the most appropriate model to value Netflix. Heres Free Cash Flow projections (in billions of $) needed to value Netflix as a firm. Year FCF 1 8.3 2 9.1 3 10.0 4 11.0 5 12.0 After year 5, Netflixs free cash flow is expected to grow at a 4% constant growth rate in year 5 and beyond. Netflixs WACC is 8%. Netflix has $16.3 billion in debt (market value of debt) and 0.44 billion shares of common stock outstanding? What is your valuation of Netflixs common stock today? Would you recommend buying Netflixs stock today and why? Use current price in #6 to help aid your recommendation.