Financial Analysis Exercise III

Financial Analysis Exercise III Throughout this course you will work with the Yahoo!Finance database and perform elements of securities analysis involving a select group of companies. Review the Sherwin-WIlliams example. Select ONE of the four companies provided by your professor for analysis. (My chosen company is APPLE) Write a 1-2 page (approximately 500 words) paper on the following: Part A-Fundamental Valuation: Estimate a growth rate for your firm's Dividends per Share. Assume a 12.5% discount rate. Calculate an estimated value of a share of the stock using the constant-growth model (Eq. 8-6 in the textbook), also known as the Gordon growth model. Compare and contrast your valuation results with the current share price in the market. Respond to this question: What changes in the variables would be necessary in your valuation to best approximate the market valuation? Part B - Relative Valuation: Estimate a growth rate for your firm's Earnings per Share (EPS). Determine an applicable Price-Earnings (P/E) ratio for your firm in 5 years. Calculate an estimated value of a share of the stock in 5 years using the P/E ratio model (Eq. 8-10 in the textbook). Respond to this question: Would you characterize your stock as undervalued or overvalued? Explain. Respond to this question: Based on your valuations in parts A and B, would you invest in this stock? Explain.