- Choose a firm to value. Pick your firm from the constituents of the S&P; 500 i
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Question
- Choose a firm to value. Pick your firm from the constituents of the S&P; 500 index (you can find a list in the "SP 500 firms" spreadsheet). Do NOT use any company marked in RED in that list. Depending on the data, you may have to change your initial choice and find a different company. Specifically: make sure that (a) the company has paid a recent dividend (i.e.: there's dividend data in Yahoo! Finance), and (b) that the expected future growth of the firm (as forecasted by analysts, also obtainable in Yahoo! Finance) is lower than its cost of equity[1]. The valuation template Excel spreadsheet has instructions on where to find all the required data in Yahoo! Finance (finance.yahoo.com). st To complete the challenge, do all the necessary calculations and enter the missing data in the spaces provided in the Valuation Template spreadsheet, then upload your Excel file to Canvas. If any of these questions is blank (i.e.: unanswered) you will not receive credit for this Challenge. For the last question simply click on the cell in Excel, which will display a down arrow in the corner of the cell. Click on this arrow and you'll be able to select a recommendation: buy, sell or do nothing. Fancre ter r danExplanation / Answer
Company name: Office Depot Inc (ODP)
Beta : 3.02
Div0 : 0.10
g: 3.14%
rf : 1.8%
E(rm) : 7.2%
E(r) : rf + Beta * ((E(rm) - rf) = 1.8% + 3.02 * ( 7.2%-1.8%) = 1.8% + 16.308% = 18.108%
D1 : Div0 * (1+ growth rate) = 0.1 * (1 + 3.14%) = 0.1 * 1.0314 = 0.10314
P: D1/(rate of return- growth rate) = 0.10314 / 0.18108-0.0314 = 0.68907
Pmarket : 3.24
This stock is overvalued as the current price is not getting justified by DDM value calculated using estimated growth rate. You can sell these shares and buy later at better value.
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