# Equity Pricing Assignment

**RSaleem**

** & Institutions**

**Equity Pricing Homework Exercise**

The stock of company XYZ is currently price at $80 per share. It’s earnings this year (T=0) are $4.00 per share. It has paid out a dividend equal to 40% of its earnings for the past several years. It’s Return on Equity (ROE) has been 18%.

1. What is the company’s current Dividend Yield?

4.0 * .40 = 1.60 dividend per share. 1.60/80 =

Dividend Yield = Annual Dividend per Share / Market Price of the Stock

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**Dividend Discount Model **

The market expects that companies similar to XYZ will display a rate of return of 13% per year

2. What is the company’s expected Growth Rate for Earnings & Dividends?

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3. What dividends will the company pay this year (D0) and be expected to pay next year (D1)?

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4. What is the estimated value of the stock today (T=0) using the Dividend Discount Model?

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5. What is the estimated value of the stock 1 year from today (T=1)?

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**Capital Asset Pricing Model (CAPM)**

The current risk free interest rate is 2%

The market as a whole is expected to realize a return of 15% this year

XYZ’s stock has historically displayed a Beta of 0.9

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6. Using the CAPM, what is the required rate of return that investors would demand of XYZ this year?

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7. If the required rate of return as calculated in (5) were used in the dividend discount model, what would be an appropriate value for XYZ’s stock today (T=0)?

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**Market Multiples**

8. If the Price / Earnings ratio for XYZ during similar stages of the business cycle had ranged from 16x to 22x, what would be the range of values for its stock?

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- 7 years ago

**Perfect Solution**

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- equity.pricing.solution.xlsx

### FIN -Equity Pricing Homework Exercise

NOT RATED

The stock of company XYZ is currently price at $80 per share. It’s earnings this year (T=0) are $4.00 per share. It has paid out a dividend equal to 40% of its earnings for the past several years. …7 years ago### The stock of company XYZ is currently price at $80 per share. It’s earnings this year (T=0) are $4.00 per share. It has paid out a dividend equal to 40% of its earnings for the past several years. It’s Return on Equity (ROE) has been 18%.

NOT RATEDThe stock of company XYZ is currently price at $80 per share. It’s earnings this year (T=0) are $4.00 per share. It has paid out a dividend equal to 40% of its earnings for the past several years. …

7 years ago