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FIN 322
Investment and Portfolio Management
Fall 2023-2024
NAME:
.
UNIT 6 PART 2 GRADED ASSIGNMENT
Formulas are to the right in the blue box.
1
You are considering investing in a hotel company. You estimate next year’s sales will be $100 million.
The company has five million shares outstanding, generates a net profit margin of about 10%, and
has a payout ratio of 50%. All these figures are expected to be the same next year.
Given that, compute the following (show all calculations in the answer cells)
a.
b.
c.
d.
2
25 POSSIBLE POINTS
Estimated net earnings for next year:
Next year’s dividends per share.
The expected price of the stock, assuming the P/E ratio is 24.5 times earnings
The expected holding period return (note: today’s stock price is $40 per share).
There are three companies that paid the same dividend last year (Year 0): $1.85 per share. Also, the f
annual rate of growth in dividends (i.e. g )for each of the three companies are estimated to be:
g
#1
Dividends
0% for all years Year 0:
$1.85
#2
5% for all years Year 0:
$1.85
#3
Year 0:
Year 1:
Year 2:
$1.85
$2.13
$2.39
5% for year 3
and beyond
All three companies have the same required rate of return: r = 12%
a.
Use the appropriate Discounted Present Value model (formulas in the blue box) to value each
calculations in the cells:
#1
#2
#3
b.
What is(are) the major cause(s) of differences in valuation of the three companies?
3
Here are data for Intel Inc., the computer chip designer/manufacturer, from 2015 through most of 2023
(2023 data are not complete yet.) What do you think its share price will be for 2023?
You can use any two methods you choose to estimate the share prices. Show your calculations. Also,
explaiin why you chose the methods you chose. If the two methods do not produce similar results,
choose one of them and describe why you made that choice (“It just seemed better” is not an acceptabl
If you want to find a growth rate g for dividends, earnings, etc., you can use the formula to the right, or
method that uses the data. You can also bring in other information, but tell me what that information is.
Method 1 and result and reason for choosing:
Method 2 and result and reason for choosing:
Final Choice and why:
Share price (average for the year)
2015
$32,2
2016
$33,5
2017
$37,8
2018
$49,1
Sales per share
“Cash flow” per share
Earnings per share
Dividends per share
Book value per share
Common Shares outstanding (in millions)
Average annual P/E ratio
Sales ($ millions)
Operating margin
Net Profit ($ million)
Net profit margin
Shareholders’ equity ($ million)
Return on Equity
Dividend payout ratio
11,72
4,07
2,33
0,96
13,12
4.725
13,8
55.355
40,5%
11.420
20,6%
61.982
18,4%
40,0%
Beta
10-year Risk-free rate
10-year market return
0,9
4,80%
11,6%
12,56
4,10
2,72
1,04
14,19
4.730
12,3
59.387
35,9%
13.146
22,1%
67.108
19,6%
37,0%
13,39
5,02
3,47
1,08
14,91
4.687
10,9
62.761
40,2%
16.756
26,7%
69.885
24,0%
30,0%
15,69
6,44
4,59
1,20
16,6
4.516
10,7
70.848
43,7%
21.570
30,4%
74.982
28,8%
26,0%
FIN 322
and Portfolio Management
all 2023-2024
#VALUE! Points
#VALUE! Percent
Points
Possible Points
5
s sales will be $100 million.
rgin of about 10%, and
imes earnings
$40 per share).
$1.85 per share. Also, the future
are estimated to be:
10
Zero-growth Dividend Discount:
Constant growth Dividend Discount:
Variable growth Dividend Discount:
Estimating growth rate of Dividends, etc.
=
ℎ
n the blue box) to value each company. Show all
e three companies?
ℎ = ( /
m 2015 through most of 2023.
10
ow your calculations. Also,
produce similar results,
ed better” is not an acceptable description.)
e the formula to the right, or some other
me what that information is.
2019
$51,3
2020
$54,7
2021
$55,8
2022
$40,0
2023
$31,0
16,78
7,24
4,89
1,26
18,1
4.290
10,5
71.965
44,2%
21.853
30,4%
77.659
28,1%
26,0%
19,17
8,12
5,31
1,32
19,95
4.062
10,3
77.867
44,1%
22.499
28,9%
81.038
27,8%
25,0%
19,42
7,94
5,47
1,39
23,44
4.070
10,2
79.024
40,5%
22.348
28,3%
95.391
23,4%
25,0%
15,24
5,00
1,85
1,46
24,52
4.137
21,6
63.054
24,4%
7.641
12,1%
101.423
7,5%
78,0%
12,5
3,45
0,60
0,74
24,75
4.200
51,7
52.450
38,0%
2.520
4,8%
104.000
2,5%
123,3%
=
=
0 (1 + )
( − )
(1 + )
1
2
3
( − )
=
+
+
+
1
2
3
(1 + )
1+
1+
1+ 3
= × 1 −
=
ℎ
)
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