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Class notes, week ending 9/18

by: Arianna Laurenza

Class notes, week ending 9/18 FIN 3050

Marketplace > Clemson University > Finance > FIN 3050 > Class notes week ending 9 18
Arianna Laurenza
Investment Analysis
Kerri McMillan

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About this Document

Class notes from the week of 9/14 thru 9/18
Investment Analysis
Kerri McMillan
Class Notes
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This 4 page Class Notes was uploaded by Arianna Laurenza on Monday September 21, 2015. The Class Notes belongs to FIN 3050 at Clemson University taught by Kerri McMillan in Summer 2015. Since its upload, it has received 83 views. For similar materials see Investment Analysis in Finance at Clemson University.

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Date Created: 09/21/15
091415 Chapter 7 Finding Undervalued Stocks 5 Models Dividend Discount Model 0 Stock is said to be undervalued when the intrinsic value is greater than the market price current stock price Finding the stock s fundamental value 0 Intrinsic Value V50 fundamental value true value of a stock 0 Fundamental Analysis every security has an intrinsic value that is determined 0 VSO of a stock can change if a company s fundamentals change VSO comes from CAPM DDM V50 2 PV of future dividend stream payments PV of future dividend stream payments it s expected price capital appreciation in the future 2 D01 g D01 g2 mDo1 g 50 1 ke 1 kg2 1 k3quot Where ke required return discount rate from CAPM ke Rf 8Rm Rf Implications of DDM 1 Investment holding period is irrelevant for determining intrinsic value Vso does not differ with different investment horizon dates 2 Can ignore PV selling price in the future because its impact on Vso is negligible because futre prices are impossible to predict 3 Cannot be used if the stock does not pay dividends kegtg Constant Growth Model Formula holds if 0 Growth rate must be constant 0 kegt g required return must exceed growth rate lower g lower ke lower ke higher VSO higher ke lower V50 Waste Management WM D1 154 D k6 1063 V50 2 1 g 783 ke g 154 V 6087 SO 1036 O783 Class Notes FIN 3050 Investment Analysis 09142015 Chapter 7 Finding Undervalued Stocks 5 Models DDM nonconstant growth twophase DDM 0 Growth is usually higher early on and then the growth rate slows as the company matures o Reminder ke RfBRm39Rf discount raterequired rate of return Previous year x 1g PHASE year dividends x PV factor 11ken PV of dividends g 20 1 S 100 0893 1112 S 089 Ke 12 2 120 0797 11122 096 3 144 0712 11123 102 4 173 0636 11124 110 5 207 0567 11125 117 6 248 0507 11126 126 7 298 0452 11127 135 8 358 0404 11128 145 9 429 0361 11129 155 10 514 D10 0322 111210 165 1240 PHASE I PHASE H g 8 D1 001 9 139 Vso at the end ofyear 10 Now discount back to the present Class Notes 011 5151 08 556 PHASE II 139 X 44 75 11210 PHASE I PHASE II V50 1242 4475 5717 FIN 3050 Investment Analysis 091615 09162015 PHA5E year dividends x PVfactor 11ken PVofdividends g 20 1 400 0885 1113 354 ke 13 2 480 0783 11132 375 3 576 0693 11133 399 4 691 D4 0613 11134 424 1552 PHASEI PHASEII g 5 D1 001 9 05 6911 05 726 Do ke g VSO 726 V 9075 51quot 13 05 139 Vso at the end of year 10 Now discount back to the present PHASE II 1 7 90 5gtlt1I134 55 66 PHASE I PHASE II V50 1552 9075 7118 Intrinsic Value Intrinsic value is what we think the stock is worth Should we buy if the stock is trading for 75 0 No because it is only worth 7118 Vsogtstock price 0 Do not buy quotovervalued stockquot Class Notes FIN 3050 Investment Analysis 09162015 091815 Chapter 7 Finding Undervalued Stocks 5 Models Earnings Model EPSl g ke b g growth rate ROE1b ROE11diVEPS so k 1 k i b retention rate 1diV payout ratio 1diVEPS i e e g I Smucker s Iam Co SIM EPS500 Div 150 ROE 12 ke 150 g X m b1 3070 V 500 084 13 70 3 013 13 084 38 462 1 39007 32 61 39 046 39 lgootlocker FL EPS385 Div 096 ROE 1350 kg 1228 096 b 1 02494 07506 385 1013 1228 7506 V50 1 01228 1228 1013 31 3521 39009 4448 39 0215 39 Class Notes FIN 3050 Investment Analysis 09182015


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