Read Valuing War-mart Stock by Stephen r foerster published by Ivey school of business and help with the following.

. 1) What is Wal-Marts (WMTs) current share price? (1 mark)

2) What is the cost of equity (kE) for WMT? (9 marks)

a. Using the CAPM model and estimates provided what is the kE?

b. What kE is implied by the current price, perpetual dividend growth estimate and forecasted 2006 dividend?

c. From Exhibit 6, does the relationship between WMT and SP500 look to be linear? How accurate is the linear relationship? In your opinion, is the beta provided in Exhibit 6 realistic to use in valuing WMT?

d. What is your best estimate of kE and why? e. If you were going to test sensitivity around values using kE, what range of kE would you use?

3) Constant Growth DDM (6 marks)

a. Using the estimates given in the case, what is the intrinsic value of WMT using the constant growth DDM?

b. Calculate the expected perpetual (sustainable) growth rate using the 45% eventual dividend payout ratio.

c. In your opinion, is the dividend perpetual growth estimate realistic? Why or why not?