6. LewCo announces very early on the morning of January 3, 2020 (after the split and the 2019 dividend payment), that the recent housing crash and subsequent regulatory changes have reduced demand for their construction projects, resulting in a change to their caring outlook and dividend policy. They announce that they plan to hold their dividend constant at S5 per year for the foreseeable future. a. What do you predict will be the new share price assuming the cost of capital as in questions 1 and 2? b. You believe the housing market will recover, and LewCo will resume growing its dividend. What is the value of the company assuming dividends growth is zero for three years and then grows again at 6% per year? Hint: you might want to separate the value of the company into two pieces: the value for year 4 and beyond plus the value of the first 3 years 7. I've taken a brief look at Pepsi (PEP) and Coke (KO) using Yahoo Finance Current Year Ending Pepsi Growth 5 Years Price 9/5/2019 $3.77 8.7% CAGR 9.0% $136.66 9/6/2018 $3.47 11.2% Avergage 9.0% 8/30/2017 $3.12 7.0% Std Dev 2.0% 8/31/2016 $2.91 7.2% 9/2/2015 $2.72 11.0% 9/3/2014 $2.45 10.7% A. What is there or cost of capital implied by the market, assuming that dividends grow at the 5-year compound annualized rate of growth (CAGR)? Coke Current Price $53.85 51.59 Year Ending 9/13/2019 9/13/2018 9/14/2017 9/13/2016 9/11/2015 9/11/2014 5 Years 5.9% Avergage 5.9% Std Dev 1.9% CAGR Growth 3.296 5.5% 5.8% 6.6% 8.4% 9.1% $1.54 $1.46 $1.38 $1.30 $1.20 B. Use there from Pepsi to value Coke. They are both global beverage companies. What is the value of Coke stock (P) based on the model? C. What action would you take as an investor based on your analysis? 6. LewCo announces very early on the morning of January 3, 2020 (after the split and the 2019 dividend payment), that the recent housing crash and subsequent regulatory changes have reduced demand for their construction projects, resulting in a change to their caring outlook and dividend policy. They announce that they plan to hold their dividend constant at S5 per year for the foreseeable future. a. What do you predict will be the new share price assuming the cost of capital as in questions 1 and 2? b. You believe the housing market will recover, and LewCo will resume growing its dividend. What is the value of the company assuming dividends growth is zero for three years and then grows again at 6% per year? Hint: you might want to separate the value of the company into two pieces: the value for year 4 and beyond plus the value of the first 3 years 7. I've taken a brief look at Pepsi (PEP) and Coke (KO) using Yahoo Finance Current Year Ending Pepsi Growth 5 Years Price 9/5/2019 $3.77 8.7% CAGR 9.0% $136.66 9/6/2018 $3.47 11.2% Avergage 9.0% 8/30/2017 $3.12 7.0% Std Dev 2.0% 8/31/2016 $2.91 7.2% 9/2/2015 $2.72 11.0% 9/3/2014 $2.45 10.7% A. What is there or cost of capital implied by the market, assuming that dividends grow at the 5-year compound annualized rate of growth (CAGR)? Coke Current Price $53.85 51.59 Year Ending 9/13/2019 9/13/2018 9/14/2017 9/13/2016 9/11/2015 9/11/2014 5 Years 5.9% Avergage 5.9% Std Dev 1.9% CAGR Growth 3.296 5.5% 5.8% 6.6% 8.4% 9.1% $1.54 $1.46 $1.38 $1.30 $1.20 B. Use there from Pepsi to value Coke. They are both global beverage companies. What is the value of Coke stock (P) based on the model? C. What action would you take as an investor based on your analysis
