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The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 2. Suppose ABC has changed its products, and dividends will not grow at the same rate. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 3. Recall XYZ is a new company. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell XYZ?

The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 2. Suppose ABC has changed its products, and dividends will not grow at the same rate. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 3. Recall XYZ is a new company. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell XYZ?

Essentials Of Investments
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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Note: the second page complement the table on the first page
АВС ΧYΖ Discount rate (r) Historical growth rate of dividends 0.17 0.135 0.0234 Not available. Cannot compute without dividends Sustainable growth rate Fundamental value using dividend growth model with the historical growth rate Fundamental value using the dividend growth model with the sustainable growth rate Fundamental value using residual income growth 0.045 0.2 Not available. Cannot 478.85 compute without dividends 561.6 Not available. Cannot compute without dividends 470.68 Not available. Cannot compute without dividends model with the historical growth rate Fundamental value using the residual income growth 470.8 123.08 model with the sustainable growth rate
Transcribed Image Text:АВС ΧYΖ Discount rate (r) Historical growth rate of dividends 0.17 0.135 0.0234 Not available. Cannot compute without dividends Sustainable growth rate Fundamental value using dividend growth model with the historical growth rate Fundamental value using the dividend growth model with the sustainable growth rate Fundamental value using residual income growth 0.045 0.2 Not available. Cannot 478.85 compute without dividends 561.6 Not available. Cannot compute without dividends 470.68 Not available. Cannot compute without dividends model with the historical growth rate Fundamental value using the residual income growth 470.8 123.08 model with the sustainable growth rate
The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 2. Suppose ABC has changed its products, and dividends will not grow at the same rate. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 3. Recall XYZ is a new company. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell XYZ?
Transcribed Image Text:The "stock valuation model" referred to in the questions below relate to the whether the fundamental value is estimated with the dividend growth model or the residual income model, AND whether the growth rate is estimated with the historical growth rate or the sustainable growth rate. These estimates of the fundamental value are in the last four rows of the table above. Suppose the current price of ABC stock is as given in the table above, and the current price of XYZ stock is as given in the table above. 1. Assume dividends will continue to grow at the same rate for ABC stock. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 2. Suppose ABC has changed its products, and dividends will not grow at the same rate. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell ABC stock? 3. Recall XYZ is a new company. a. Explain which stock valuation model(s) you would choose? b. Given the current price, should you buy or sell XYZ?
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