FA-12.Main

You want to value the company Marks and Spencer Group Plc. You project the dividends over 10 years as follow:

Year Dividend

1 18.69

2 19.62

3 20.61

4 21.64

5 22.72

6 22.49

7 19.12

8 20.07

9 21.08

10 22.13

You expect a resale price in 10 years at 360. Based on the risk of the company, you require a rate of return on equity of 7.5%.

1. Using the DDM, calculate the price of the company today.

Instead of a final resale price of 360, you now forecast a long-run growth rate of 4.2%.

2. Using the Gordon-Shapiro model only , calculate the price of Mark and Spencer.

3. Using the forecasted dividend values for the first ten years and the long-run growth rate after that, calculate the present stock value.

You now predict a medium growth rate of 6% from years 10 to 15 and a long-run growth rate of 4.2% after year 15.

4. Using the forecasted dividend values for the first ten years, the medium-term growth rate from years 11 to 15 and the long-run growth rate after that, calculate the present stock value.

5. Compare the different results. Find the current stock price of Mark and Spencer and decide what do you do (i.e. buy or sell), using the prediction of each model.

6. Write a short text to reflect on the different models, their hypotheses, and their consequences on the pricing of the company.