Question
Estimate the value of consumer goods MXV stock using DDM based on the following inputs. The average yield to maturity on a 30-year Treasury bond
- Estimate the value of consumer goods MXV stock using DDM based on the following inputs.
The average yield to maturity on a 30-year Treasury bond is given as 2.94% during the period 2018-2019. Beta is estimated by regressing the weekly MXV stock returns on the market index S&P500 weekly returns during the two-year period 2018-2019.The beta value is estimated as 0.56. The average returns on the market index S&P500 was 7.94%. The after tax cost of debt was 3.67%.
The relevant financial highlights for the company for the past five years is given below.
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| EPS | 4.11 | 3.93 | 3.66 | 3.86 | 4.02 |
| DPS | 2.06 | 1.98 | 2.24 | 2.29 | 2.38 |
| ROE | 0.21 | 0.19 | 0.18 | 0.19 | 0.2 |
The high growth period is assumed to be 10 years. The stable growth rate is assumed to be the US GDP growth rate. The US GDP average growth rate during the period 2018-2019 is assumed to be 2.3%. The ROE of consumer goods industry sector is 18.2%.
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