You have been recently hired an analyst for a JPMorgan, the advisor has asked you to value the stocks of General Electric (NYSE: GE) and General Motors (NYSE: GM). You are to evaluate the appropriateness of the dividend discount model (DDM) for valuing GE and GM and have compiled the following data for the two companiesfor 2010 through 2017. GE GM Year EPS($) DPS(S) Payout Ratio EPS($) DPS($) Payout Ratio 2017 2.17 1.15 0.53 -68.45 1.00 -0.01 2016 1.99 1.03 0.52 -3.50 1.00 -0.29 2015 1.76 0.91 0.52 -18.50 2.00 -0.11 2014 1.61 0.82 0.51 4.94 2.00 0.40 2013 1.55 0.77 0.50 5.03 2.00 0.40 2012 1.51 0.73 0.48 3.35 2.00 0.60 2011 1.41 0.66 0.47 1.77 2.00 1.13 2010 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, explain whether the DDM is appropriate for valuing the stock. Provide quantitative and qualitative arguments supporting your position. 3.You have been appointed as the senior equity analyst for an analyst for an equity mutual fund that invests in British stocks. At the beginning of 2018, You were examining domestic stocks for possible inclusion in the fund. One of the stocks that you are analyzing is British Sky Broadcasting Group (London Stock Exchange: BSY). The stock has paid dividends per share of 9, 12.20, and 15.50 at the end of 2015, 2016, and 2017, respectively. The consensus forecast by analysts is that the stock will pay a dividend per share of 18.66 at the end of 2018 (based on 19 analysts) and 20.20 at the end of 2019 (based on 17 analysts). You estimated that the required rate of return on the stock is 11 percent. A. Compare the compound annual growth rate in dividends from 2015 to 2017 inclusive (i.e., from a beginning level of 9 to an ending level of 15.50) with the consensus predicted compound annual growth rate in dividends from 2017 to 2019, inclusive. B. You believe that BSY has matured such that the dividend growth rate will be constant going forward at half the consensus compound annual growth rate from 2017 to 2019, inclusive, computed in Part A. Using the growth rate forecast of Owens as the constant growth rate from 2017 onwards, estimate the value of the stock as of the end of 2017 given an 11 percent required rate of return on equity. C. State the relationship between estimated value and r and estimated value and g. You have been recently hired an analyst for a JPMorgan, the advisor has asked you to value the stocks of General Electric (NYSE: GE) and General Motors (NYSE: GM). You are to evaluate the appropriateness of the dividend discount model (DDM) for valuing GE and GM and have compiled the following data for the two companiesfor 2010 through 2017. GE GM Year EPS($) DPS(S) Payout Ratio EPS($) DPS($) Payout Ratio 2017 2.17 1.15 0.53 -68.45 1.00 -0.01 2016 1.99 1.03 0.52 -3.50 1.00 -0.29 2015 1.76 0.91 0.52 -18.50 2.00 -0.11 2014 1.61 0.82 0.51 4.94 2.00 0.40 2013 1.55 0.77 0.50 5.03 2.00 0.40 2012 1.51 0.73 0.48 3.35 2.00 0.60 2011 1.41 0.66 0.47 1.77 2.00 1.13 2010 1.27 0.57 0.45 6.68 2.00 0.30 For each of the stocks, explain whether the DDM is appropriate for valuing the stock. Provide quantitative and qualitative arguments supporting your position. 3.You have been appointed as the senior equity analyst for an analyst for an equity mutual fund that invests in British stocks. At the beginning of 2018, You were examining domestic stocks for possible inclusion in the fund. One of the stocks that you are analyzing is British Sky Broadcasting Group (London Stock Exchange: BSY). The stock has paid dividends per share of 9, 12.20, and 15.50 at the end of 2015, 2016, and 2017, respectively. The consensus forecast by analysts is that the stock will pay a dividend per share of 18.66 at the end of 2018 (based on 19 analysts) and 20.20 at the end of 2019 (based on 17 analysts). You estimated that the required rate of return on the stock is 11 percent. A. Compare the compound annual growth rate in dividends from 2015 to 2017 inclusive (i.e., from a beginning level of 9 to an ending level of 15.50) with the consensus predicted compound annual growth rate in dividends from 2017 to 2019, inclusive. B. You believe that BSY has matured such that the dividend growth rate will be constant going forward at half the consensus compound annual growth rate from 2017 to 2019, inclusive, computed in Part A. Using the growth rate forecast of Owens as the constant growth rate from 2017 onwards, estimate the value of the stock as of the end of 2017 given an 11 percent required rate of return on equity. C. State the relationship between estimated value and r and estimated value and g
