The Wall Street Journal Project Finance 305

Investment Analysis

Attached Sources: Wall Street Journal

Value Line

• What would be the required return for J.M. Smucker stock using the 10-year U.S. Treasury Note for the risk-free rate, the beta for J.M. Smucker as found in the Value Line Survey, and the equity risk premium using the following Ibbotson Data:

Series	Average Annual Return	Standard Deviation
Large-company stocks	11.8%	20.5%
Small-company stocks	16.6%	32.8%
Long-term corporate bonds	6.2%	8.3%
Long-term government	5.8%	9.6%
Intermediate-term government	5.5%	5.7%
U.S. Treasury bills	3.7%	3.1%
Inflation	3.1%	4.2%

Source: Stocks, Bonds, Bills and Inflation Yearbook: 2010; Arithmetic Mean 1926-2009

Plug your required return number for Smucker into the dividend discount model (DDM) and determine the intrinsic value of J.M. Smucker. Use the expected annual dividend shown in Value Line for the next year. Using Value Line, calculate a growth rate.Look up the common stock price of Smucker in The Wall Street Journal, and determine whether Smucker common stock is undervalued or overvalued based on your analysis. Would you buy?Using Value Line as your reference, use the P/E Model to determine the intrinsic value of Smucker stock. Compare this value to the current market price. Is the stock undervalued or overvalued. Would you buy?Using Value Line as your reference, use the Earnings Model to determine the intrinsic value of Smucker stock. Compare this value to the current market price. Is the stock undervalued or overvalued. Would you buy?Using Value Line as your reference, use the P/B Model to determine the intrinsic value of Smucker stock. Is the stock undervalued or overvalued. Would you buy?Using Value Line as your reference, use PEG evaluation to determine the intrinsic value of Smucker stock. Is the stock undervalued or overvalued? Would you buy?