Common stock valuation using Dividend Discount Model and P/E technique
Assignment No. 4 Marks: 3 Due Date: MBA A+B = June 9, 2010
The assignment must be done in groups formed previously.
Stock valuation using Dividend Discount Model Take dividends of the assigned compaies in the last 5 years.
Using the multistage growth model
Compare the intrinsic value with the actual share price to tell whether the stock is under valued or over valued
Stock valuation using P/E technique Find out the intrinsic value of the companies by using the P/E technique. Intrinsic value = P/E x EPS1 Eps1 is the next year expected EPS: You can find that out by finding the yearly growth rate in EPS of last five years and then using geometric mean find out the average growth rate. Multiply the average growth rate with the present year EPS to find out the next year EPS1 Example of Geometric mean =
GM = [(1+.25) x (10.1)) x (10.11) *x (1+0.25)]^{1}^{/n} – 1 = [1.25 x 0.8 x 0.89 x 1.25]^{1/4 1} ^{ = [1.25]1/4 – 1} = 1.057 1 = .057 5.7% EPS1 for year 2005 will be: EPSo x (1+growth rate) = 10x(1+.057) => 10.57 Or you can take the expected EPS of the next year from a brokerage house or any other analysts. In that case, make sure you provide the supportive tables or any other data that to provide evidence for the validity of EPS1
Compare the intrinsic value with the actual share price to tell whether the stock is under valued or over valued

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