Explore BrainMass
Share

Explore BrainMass

    I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Company Valuation project - as part of a project, I am required to provide a financial Valuation of a Company using the valuation methods below. This is an Australian Company "Hills Industries" full details can be found at http://www.hills.com.au

    I require assistance and help with these valuations, to allow me to write up a report on the company and to learn from the method used:

    I need help with the following:

    ? The working out for each valuation method below and answers with calculations behind each valuation method. (if possible in a excel file so that I can review the method used) Plus a brief explanation of each method and results (so that I can them review the method and understand then and to expand and write a full report)

    The only information given is the excel file attached hills.xls and suggested viewing of the annual reports for 2004 and/or 2003... also attached.

    Any questions can be asked to me, via email at russ01@bigpond.net.au

    Company Valuation - methods

    Using fundamental analytical techniques

    1. Dividend Discount Model + justifications (approx 1 page Double spaced)

    a. Constant Growth model + explanation (300 words approx)

    b. Differential Growth model + explanation (300 words approx)

    Note a: How to apply Constant Growth Dividend Discount Model?

    Step 1: Compute the beta of the stock
    a) using regression
    b) using spread sheet (Excel) - see illustration spreadsheet

    Step 2: Look for a risk-free rate. Go to the website of Monetary Authority, such as RBA, to look for the yield of Treasury Bills (3-month) or Government Bonds

    Step 3: Calculate the return of local stock market - by computing the average return of the Stock Index, such as AOI or ASX200 over a 48 or 60-month period

    Step 4: Apply the CAPM formula to compute the r (Discount rate)
    r = risk free rate + beta (return of AOI - risk free rate)

    Step 5: Estimate the growth rate
    a) using historical growth rate of Earnings per share
    b) using the self sustainable growth rate = Retention ratio x ROE
    c) using the industry growth rate
    d) using the competitor's growth rate

    Step 6: Apply the Constant growth DDM, where
    Price = Current dividend (1 + growth rate) / (discount rate - growth rate)

    Step 7: compare this estimated price with the current stock price. If the estimated price is higher than the current stock price, the stock is considered 'undervalue', you should make a 'buy' recommendation.

    Note b: to apply a two-stage growth Dividend Discount Model?

    The key points here are:

    You have to estimate how long the high growth period will last.
    Hint: You may simply assume 3 years or 4 years

    You have to estimate a constant growth rate after the high growth period.
    Hint: You may use the same constant growth rate mentioned earlier

    © BrainMass Inc. brainmass.com April 3, 2020, 2:48 pm ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/46639

    Attachments

    $2.19

    ADVERTISEMENT