Janet Ludlow's 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. a. Calculate the required rate of return for SmileWhite using the information in the following table: December 2010 Quick Brush SmileWhite 1.35 Beta 1.1 $30 $45.00 $63.00 Market Price Intrinsic Value Note: Risk-free rate 3.5%; expected market return 15.5%. Instruction: enter your answer as a percentage rounded to 1 decimal place. Required rate of return b. Ludlow estimates the following EPS and dividend growth rate for SmileWhite: First three years: 15% per year Years thereafter: 13% per year Estimate the intrinsic value of SmileWhite in December 2010 using the table above and the two-stage DDM. Dividends per share in 2010 were $1. Instruction: enter your answer as a decimal number rounded to 2 decimal places. Year 2010 Dividends $1.00 $ $ $ $ 2011 2012 2013 2014 $ Intrinsic stock value in 2013: $ Intrinsic stock value in 201O:
Janet Ludlow's 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. a. Calculate the required rate of return for SmileWhite using the information in the following table: December 2010 Quick Brush SmileWhite 1.35 Beta 1.1 $30 $45.00 $63.00 Market Price Intrinsic Value Note: Risk-free rate 3.5%; expected market return 15.5%. Instruction: enter your answer as a percentage rounded to 1 decimal place. Required rate of return b. Ludlow estimates the following EPS and dividend growth rate for SmileWhite: First three years: 15% per year Years thereafter: 13% per year Estimate the intrinsic value of SmileWhite in December 2010 using the table above and the two-stage DDM. Dividends per share in 2010 were $1. Instruction: enter your answer as a decimal number rounded to 2 decimal places. Year 2010 Dividends $1.00 $ $ $ $ 2011 2012 2013 2014 $ Intrinsic stock value in 2013: $ Intrinsic stock value in 201O:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Janet Ludlow's 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.
a. Calculate the required rate of return for SmileWhite using the information in the following table:
December 2010
Quick Brush
SmileWhite
1.35
Beta
1.1
$30
$45.00
$63.00
Market Price
Intrinsic Value
Note: Risk-free rate 3.5%; expected market return 15.5%.
Instruction: enter your answer as a percentage rounded to 1 decimal place.
Required rate of return
b. Ludlow estimates the following EPS and dividend growth rate for SmileWhite:
First three years: 15% per year
Years thereafter: 13% per year
Estimate the intrinsic value of SmileWhite in December 2010 using the table above and the two-stage DDM. Dividends per share in
2010 were $1.
Instruction: enter your answer as a decimal number rounded to 2 decimal places.
Year
2010
Dividends
$1.00
$
$
$
$
2011
2012
2013
2014
$
Intrinsic stock value in 2013:
$
Intrinsic stock value in 201O:
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