Nielson Motors (NM) is a newly public firm with 25 million shares outstanding. You are doing a valuation analysis of Nielson and you estimate its free cash flow in the coming year to be $40 million. You expect the firm's free cash flows to grow by 4% per year in subsequent years. Because the firm has only been listed on the stock exchange for a short time, you do not have an accurate assessment of Nielson's equity beta. However, you do have the following data for another firm in he same industry: Equity Beta Debt Beta 0.4 Debt-Equity Ratio 1.5 1.8 Nielson has a much lower debt-equity ratio of .5, which is expected to remain stable, and Nielson's debt is risk free. Nielson's corporate tax rate is 40%, the risk-free rate is 5%, and the expected return on the market portfolio is 10%. Nielson's estimated equity beta is closest to: A. 0.95 OB. 1.25 C. 1.00 OD. 1.45
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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