Exercise 1 (20 points):
XYZ tech is based in European Union. Share price of XYZ is traded at 40 euro per share. Company is paying dividends once a year. Expected dividend next year is about 2 euro per share. Return on equity is equal to 0.14.
Question 1.1:
Using Gordon model find implied growth rate of the company XYZ (10 points)
Question 1.2:
You are worrying that company might be overvalued. Forward P/E ratio in tech sector is about 20. Analysts (whom you trust) expect that earnings per share will be 3 euro per share. Use relative (multiples) valuation method to estimate “fair” share price. Compare your estimate to the actual share price and make a conclusion whether company is overvalued or no? (10 points)
Exercise 2 (30 points):
Procter & Gamble will pay an annual dividend of $4 one year from now. Analysts expect this dividend to grow at 8% per year thereafter until the fifth year. After then, growth will level off at 1% per year. What is the value of a share of Procter & Gamble stock if the firm’s equity cost of capital is 12%?
Exercise 3 (20 points):
(a&b 10 points each):
Exercise 4 (12 points): Theoretical question (250 words maximum)
Explain what are the pros and cons of the comparable/multiples valuation of the stocks? What are the most popular multiplicators for stock valuation?
Exercise 5 (10 points): Theoretical question (200 words maximum)
What are the advantages and disadvantages of DeFi (Decentralized finance) comparing to traditional financial system?
Exercise 6* (8 points): Practical valuation using P/E ratio.
Pick a stock of the publicly traded US-based company of your choice. What is the industry of the company? Use average industry P/E ratio and EPS (earnings per share) of the company to define the “fair” price of the stock.
Hint: you might find this data useful:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/pedata.html
