Tesla's stock is now traded at $732. Consensus analysts' forecasts about Tesla's earnings in the fiscal year 2022 and 2023 are $12.11 and $15.95, respectively. The book value per share is $32.9. Firm beta is estimated to be 2.13. The company has not paid out any dividend so far. Current 10- year US government bond yields 3.2% rate of return. The market risk premium of US right now is estimated to be about 4%. Page 5 of 6 Toyota Motor Corp's stock price is about $157. Consensus analysts' forecasts about Toyota's earnings in 2022 and 2023 are $16.21 and $17.95, respectively. The book value per share is $160.6. The company has a payout ratio about 25%. The risk free rate for Japan capital market is 0.24% and the market risk premium is about 7.75%. Firm Beta is estimated to be about 0.64. a. Given earnings forecasts by analysts, provide a reasonable estimate of short-term earnings growth rate of Tesla and Toyota respectively after 2023. (4 pts) b. What are the forward P/E ratios of Tesla and Toyota, respectively? Explain why these two firms' P/E ratios are different? (6 pts) c. Given the information above, what are the forecasted residual income for each company in 2022 and 2023? (6 pts) d. Provide a building block analysis about each company's stock price. (8 pts) e. What are the implied market's expectation about growth rates of Tesla and Toyota's long-term residual income after 2024? (6 pts) f. If you are a value investor, how would you evaluate these two stocks and make investment decisions? Also what additional factors you may need to find out more information about in making your final decision? (5 pts) Tesla's stock is now traded at $732. Consensus analysts' forecasts about Tesla's earnings in the fiscal year 2022 and 2023 are $12.11 and $15.95, respectively. The book value per share is $32.9. Firm beta is estimated to be 2.13. The company has not paid out any dividend so far. Current 10- year US government bond yields 3.2% rate of return. The market risk premium of US right now is estimated to be about 4%. Page 5 of 6 Toyota Motor Corp's stock price is about $157. Consensus analysts' forecasts about Toyota's earnings in 2022 and 2023 are $16.21 and $17.95, respectively. The book value per share is $160.6. The company has a payout ratio about 25%. The risk free rate for Japan capital market is 0.24% and the market risk premium is about 7.75%. Firm Beta is estimated to be about 0.64. a. Given earnings forecasts by analysts, provide a reasonable estimate of short-term earnings growth rate of Tesla and Toyota respectively after 2023. (4 pts) b. What are the forward P/E ratios of Tesla and Toyota, respectively? Explain why these two firms' P/E ratios are different? (6 pts) c. Given the information above, what are the forecasted residual income for each company in 2022 and 2023? (6 pts) d. Provide a building block analysis about each company's stock price. (8 pts) e. What are the implied market's expectation about growth rates of Tesla and Toyota's long-term residual income after 2024? (6 pts) f. If you are a value investor, how would you evaluate these two stocks and make investment decisions? Also what additional factors you may need to find out more information about in making your final decision? (5 pts)
