valuation of XYL using absolute method.

For Absolute method; DDM and/or DCF

• DDM: acceptable (for B grade level for this section)

Must be multi-stage; forecast 4 years, then from terminal year, assume a reasonable terminal CF as discussed in class (in the text of your written report, you can discuss whether this is a valid terminal point or not). For details, see lecture notes on multi-stage DDM/DCF, and stock report spreadsheet template.

For interim g over first 4 years, use one of the non-historical methods for estimating g. Explain here how you did that, and this must match what you do in the spreadsheet.

• DCF: required for a possible A grade on this section. As with DDM, must be multi-stage etc as discussed above. Forecast cash flows should be shown in a table in the appendix along with the growth rates.

• For both:
  • for the Risk-Free rate, use a constant 1%
  • for the Market return, use the S&P500, average of monthly returns for July 2017 to June 2022 (for those with a NZ stock, use the NZX50 over same period).

For terminal growth, use 2% (you may use something else, but state your assumptions)