Go to YAHOO! Finance and enter CAT (Caterpillar) in the Get Quotes area.

Pick up Cats opening stock price on 1/2/13 (the first trading day in 2013). You can find this in Historical Prices and then change the frequency to monthly.

When looking at historical prices, make note of the total quarterly dividends paid in 2012. Youll see dividends listed with the monthly prices.

Look under Analyst Estimates and find out what analysts estimate the growth rate will be for the next 5 years.

Also find Cats beta under Key Statistics.

Assume that the risk-free rate of return is 3% and that the market rate of return is 10%. Also assume that Caterpillar is a constant growth firm.

REQUIRED: Show your supporting calculations in parts A - C.

A. Compute the required rate of return on Caterpillar using the Capital Asset Pricing Model (CAPM). B. Using the annual dividend, the required rate of return from CAPM, and the growth rate from analysts, compute the intrinsic value of Caterpillar using the constant growth model. If the estimated growth rate is more than your required rate of return, then use 15% as the growth rate. C. Compare intrinsic value to Cats current stock price. Discuss the investment decision given these results; that is, would Caterpillar be a good investment when you compare price to intrinsic value? Explain your answer. D. Identify and briefly discuss two potential weaknesses of your analysis and results.