STOCK VALUATION 2 Noel Bakery is currently selling at $49.58. The cost of equity is 7.5%. 3 You are asked to value its intrinsic value based on the information provided below. 5 Question 6 1. An experienced analyst believes that the growth rate of its dividend for the next three years will be 40% per year, 7 and that after three years the dividend growth rate will be 5.5% annually. Noel Bakery has just paid a dividend of $0.31 per share. 1a. Based on the dividend discount model, what is the intrinsic value today of one share of Noel's stock? (Hint: Find the stock value at the end of year 3 first, and then calculate the present values from cash flows from year 1-3) 1b. Use IF function to show whether its stock price overvalued, undervalued, or fairly valued? 1c. Create a data table that shows the value of Wenling's stock will change if the long-term dividend growth rate ranges between 0% and 15%, in 1% increments; o .1 L2 and the cost of equity ranges between 5% and 25%, in 1% increments. In the table, I will like you to show n.a. for the stock value, when growth rate is larger than or equal _3 to the cost of equity (Note: the long term dividend growth rate assumes to be the rate after three years, which is 5.5% in this question) 4 1d. What would you do take up an arbitrage opportunity? .5 6 2. Another experienced analyst expects Noel Bakery to earn $2.75 per share next year and have a dividend payout ratio of 70%. .7 The return on equity of is 12%. 2a. Using the earnings model, what is the intrinsic value of the stock? 9 2b. Is its stock price currently overvalued, undervalued, or fairly valued, based on earnings model? 20 2c. Create a data table that shows the growth rate and the value of Wenling's stock will change if the ROE ranges between 5% and 20%, in 1% increments; e1 2d. What would you do take up an arbitrage opportunity? STOCK VALUATION 2 Noel Bakery is currently selling at $49.58. The cost of equity is 7.5%. 3 You are asked to value its intrinsic value based on the information provided below. 5 Question 6 1. An experienced analyst believes that the growth rate of its dividend for the next three years will be 40% per year, 7 and that after three years the dividend growth rate will be 5.5% annually. Noel Bakery has just paid a dividend of $0.31 per share. 1a. Based on the dividend discount model, what is the intrinsic value today of one share of Noel's stock? (Hint: Find the stock value at the end of year 3 first, and then calculate the present values from cash flows from year 1-3) 1b. Use IF function to show whether its stock price overvalued, undervalued, or fairly valued? 1c. Create a data table that shows the value of Wenling's stock will change if the long-term dividend growth rate ranges between 0% and 15%, in 1% increments; o .1 L2 and the cost of equity ranges between 5% and 25%, in 1% increments. In the table, I will like you to show n.a. for the stock value, when growth rate is larger than or equal _3 to the cost of equity (Note: the long term dividend growth rate assumes to be the rate after three years, which is 5.5% in this question) 4 1d. What would you do take up an arbitrage opportunity? .5 6 2. Another experienced analyst expects Noel Bakery to earn $2.75 per share next year and have a dividend payout ratio of 70%. .7 The return on equity of is 12%. 2a. Using the earnings model, what is the intrinsic value of the stock? 9 2b. Is its stock price currently overvalued, undervalued, or fairly valued, based on earnings model? 20 2c. Create a data table that shows the growth rate and the value of Wenling's stock will change if the ROE ranges between 5% and 20%, in 1% increments; e1 2d. What would you do take up an arbitrage opportunity