Questions

Determine the average annual rate of growth in sales over the past 5 years. (Assume sales in 1996 amounted to 7.5 million.) 1. Use this average growth rate to forecast revenues for next year (2002) and the year after that (2003). 2. Now determine the company's net earnings and EPS for each of the next 2 years (2002 and 2003). 3. Finally, determine the expected future price of the stock at the end of this 2-year period. b. Because of several intrinsic and market factors, Wilt feels that 25 is...

Valuing a Company and Its Future

Thus far, we have examined several aspects of security analysis economic and industry analysis, and the historical (company) phase of fundamental analysis. It should be clear, however, that it's not the past that's important but the future. The primary reason for looking at past performance is to gain insight about the future direction of the firm and its profitability. Granted, past performance provides no guarantees about future returns, but it can give us a good idea of a company's strengths...

Case Problem 82 An Analysis of a High Flying Stock

Glenn Wilt is a recent university graduate and a security analyst with the Kansas City brokerage firm of Lippman, Brickbats, and Shaft. Wilt has been following one of the hottest issues on Wall Street, C& I Medical Supplies, a company that has turned in an outstanding performance lately and, even more important, has exhibited excellent growth potential. It has 5 million shares outstanding and pays a nominal annual dividend of 5 cents per share. Wilt has decided to take a closer look at C&...

Some Alternatives to the DVM

The variable-growth approach to stock valuation is fairly compatible with the way most people invest. That is, unlike the underlying assumptions in the standard dividend valuation model which employs an infinite investment horizon , most investors have a holding period that seldom exceeds 5 to 7 years. Under such circumstances, the relevant cash flows are future dividends and the future selling price of the stock. There are some alternatives to the DVM that use such cash flow streams to value...

Dividend valuation model DVM

A model that values a share of stock on the basis of the future dividend stream it is expected to produce its three versions are zero-growth, constant-growth, and variable-growth. In the valuation process, the intrinsic value of any investment equals the present value of the expected cash benefits. For common stock, this amounts to the cash dividends received each year plus the future sale price of the stock. One way to view the cash flow benefits from common stock is to assume that the...