Stock Valuation: Dividend Discount Model The rate on U.S. Treasury bills is 4% and the stock market is expected to make 10% over the next several years. Firm X's beta has been calculated as 1.1 and just paid a dividend of $1.50 per share (DO). If Firm X is expected to grow at 10% for the next 4 years and 5% thereafter, estimate the firm's intrinsic value per share using the dividend discount model (DDM). If Firm X's stock price per share is currently $35, what recommendation would you give? Compute Rs: Rf= 4% Rm= 10% b= Rs= 10.60% 1.1 1.5000 5.00% 0 1 10% 2 10% 3 10% 4 10% DO= Terminal g Time Dividend growth Dividend Horizon Value (PA) Total Cash Flows: Intrinsic Value Po- Stock Valuation: Firm Valuation Model A stock analyst has projected free cash flow of 350 million for Firm X in the upcoming year. The firm is expected to grow at a constant rate of 4% thereafter. Firm X has 50m in short-term debt, 100m in long-term debt and 25m in preferred stock. Under the corporate valuation model, what should Firm X's stock price be? Assume 100m common shares outstanding and a WACC of 8.5% Stock Valuation: Dividend Discount Model The rate on U.S. Treasury bills is 4% and the stock market is expected to make 10% over the next several years. Firm X's beta has been calculated as 1.1 and just paid a dividend of $1.50 per share (DO). If Firm X is expected to grow at 10% for the next 4 years and 5% thereafter, estimate the firm's intrinsic value per share using the dividend discount model (DDM). If Firm X's stock price per share is currently $35, what recommendation would you give? Compute Rs: Rf= 4% Rm= 10% b= Rs= 10.60% 1.1 1.5000 5.00% 0 1 10% 2 10% 3 10% 4 10% DO= Terminal g Time Dividend growth Dividend Horizon Value (PA) Total Cash Flows: Intrinsic Value Po- Stock Valuation: Firm Valuation Model A stock analyst has projected free cash flow of 350 million for Firm X in the upcoming year. The firm is expected to grow at a constant rate of 4% thereafter. Firm X has 50m in short-term debt, 100m in long-term debt and 25m in preferred stock. Under the corporate valuation model, what should Firm X's stock price be? Assume 100m common shares outstanding and a WACC of 8.5%