a.Estimate the value of your stock using the Constant Perpetual Growth Dividend Discount Model (DDM)

You will need the following data from Yahoo Finance from the statistics page for the stock.

1. Current Stock Price (closing price on Yahoo)
2. Return on Equity (ROE)
3. Diluted EPS
4. Book Value per share
5. Trailing Annual Dividend Rate
6. Payout Ratio

After collecting this data, calculate the value of CVS stock using the constant growth Dividend Discount Model (DDM). Do your calculations in this order and show your work:

Estimate the sustainable growth rate for the stock.

Estimate the stocks valuation using the constant growth DDM with the sustainable growth rate you calculated in 2a and the discount rate from Question 1. It is possible that your answer will be negative. This would happen if the growth rate were greater than the discount rate. If that happens, simply explain that you could not estimate a value using this method.

Using the constant growth DDM, solve backwards to get the growth rate by using the current stock price in Yahoo Finance (the close price in the Yahoo data). As a hint, using this method the growth rate will be less than the discount rate.

b.Estimate the value of your stock using the Residual Income Model.

Using the Yahoo Finance data, estimate the value of CVS stock using the Residual Income Model (RIM). For the growth rate, use the answer that you solved backwards for in question 2c. For the discount rate, use the one you calculated in question 1. Show your work.

c. Comment on your results of the DDM and RIM. How did your estimates compare to the actual stock price. If the model did not work very well, explain what might have caused the difference.