Cost of Capital and Valuation Basics This module explains the basics of valuation and demonstrates the application of the dividend discount model. If possible, estimate the value of equity and a stock price for the company(ies) under analysis using the DDM. The aim is to determine an independent measure of the intrinsic value and assess whether the stock appears to be over or undervalued.  Begin with the latest annual dividend payments, taking care not to include any one-time, special dividends during the latest year.  

Determine weighted average cost of capital (WACC). Use the approach in the module to estimate the WACC. Test the sensitivity of your estimate to various estimates for beta found online.  

Compare your WACC calculation to estimates from a number of websites. Find the latest WACC at three or more sites and explore why they differ. 

Calculate an average WACC for your model calculation and then perform sensitivity analysis for the high and the low in the range.  

Estimate the dividend discount model.  Determine the company's actual stock price. Compare the per-share estimate to the actual stock price and form an opinion about the relative value. Is the stock over?