finance-Janet Ludlow’s firm requires all its analysts to use a two-stage
Assignment – Equity Valuation
firm requires all its analysts to use a two-stage DDM and the CAPM to value
stocks. Using these measures, Ludlow has valued QuickBrush Company at $63 per
share. She now must value SmileWhite Corporation.
Calculate the required rate of return for SmileWhite using
the information in the following table:
Risk-free rate = 4.50%; expected market return = 14.50%
Ludlow estimates the following EPS and dividend growth rates
12% per year
9% per year
intrinsic value of SmileWhite using the table above, and the two-stage DDM.
Dividends per share in 2007 were $1.72.
QuickBrush or SmileWhite stock for purchase by comparing each company’s
intrinsic value with its current market price.
strength of the two-stage DDM in
comparison with the constant growth DDM. Describe one weakness inherent
in all DDMs.
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