Question
Ahmad has compiled the following information for the two companies (Unilever and Nestle) in Table 1. Uniliver: Current ROE 30% Current EPS $2.50 Growth Rate
Ahmad has compiled the following information for the two companies (Unilever and Nestle) in Table 1. Uniliver: Current ROE 30% Current EPS $2.50 Growth Rate 12% Retention Ratio 40% Beta 1.2 Nestle: Current ROE 22% Current EPS $4.60 Growth Rate 6.6% Retention Ratio 30% Beta 0.9 In the market, the expected return is 11% and the risk-free rate is 4%. Rehman decides to start by estimating the value of the two stocks using the constant growth dividend discount model and estimating the required rate of returns using the capital asset pricing model (CAPM). Both firms are expected to grow at their sustainable growth rates. A) what is the value of a Uniliver Stock? B) what is the value of a Nestle stock?
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