Stock Valuation

Please watch the following videos:

Stock Valuation and How to Value a Stock or How to Value Stocks Explained

https://www.youtube.com/watch?v=ccpJSkkPvdg

Bullish vs Bearish – Trading Lingo

https://www.youtube.com/watch?v=RfzTShOuBuY

Stock Valuation Part 1 (Start at 1:06)

https://www.youtube.com/watch?v=SGoKkmBgB_Q

Stock Valuation Part 2

https://www.youtube.com/watch?v=6ML4urQbyGs

Stock Valuation Part 3

https://www.youtube.com/watch?v=Agl2yUJRq6c

Stock – Uneven Growth Valuation

https://www.youtube.com/watch?v=SeIRMISwv_Y
Requirements for Stock Valuation

Requirement 1: Produce a handout/notes from the first two videos listed (Stock Valuation and How to
Value a Stock or How to Value Stocks Explained & Bullish vs Bearish)

As a group, produce a handout from these videos. The handout should summarize the content of these
two videos and capture important points. At the end of the handout, give a detail of the contribution of
each of the group members in the handout.

Requirement 2: Answer the following problems and submit in Word format

PROBLEM I. A stock sells P50 per share in the stock exchange. The dividend rate is 8% per share and is
given every year.

A.) If you plan to sell the stock after four years and the value of the stock by that time is P58 per
share, find the value of the stock if discounted at 10%. Is the stock cheap or expensive?
B.) What if the facts are same in letter (A), but the stock is currently selling at P54? Would it be wise
to buy the stock now? Why or why not?
C.) Suppose the same stock in this problem has a dividend rate of 8% in the first year and grows 4%
per year. If you plan to sell the stock after four years and the value of the stock by that time is
P58 per share, find the value of the stock if discounted at 10%.
D.) Would it be wise to buy the stock in letter C if the stock currently sells at P55 instead of P50?
Why or why not?
E.) What if the stock in letter C is currently selling at P52? Is it wise to purchase the stock? Why or
why not?
F.) What if the dividend stayed at the given 8% dividend rate, but you plan to not dispose of the
stocks? Find the stock value with an expected rate of return of 10%. Is the stock cheap or
expensive under this scheme?
G.) What if the dividend started at the 8% dividend rate and will grow by 4% per year, and there are
no plans to sell the stock? Use a 10% expected return to find the stock value. Is the stock cheap
or expensive under this scheme?

PROBLEM 2. Levy Company currently sells its ordinary shares at P160 per share. Levy Company’s net
retained earnings is at P550,000 after paying P450,000 worth of dividends. The company’s usual rate of
return is 9%. The expected return rate is 8%. Dividends per year have not changed, and outstanding
shares as of last year is at 90,000 shares. If you will buy Levy Company’s stock and plan to keep it
indefinitely, how much is the value of its stock? Is it a good decision to buy the stock? Why or why not?

PROBLEM 3. Let’s say a stock is now selling in the stock exchange at $140 per share and you are thinking
of buying it. It will pay a dividend of $4 one year from today. You plan to keep it for investment, and to
never sell it. Dividend is expected to grow at a rate of 12% per year for the first three years, and then
grow at a rate of 8% from the 4 th year onwards. Required rate of return is 11%. What is the fair value of
the stock? Should you buy it at $130 or not?