Please answer the following questions (show calculations where necessary) and submit for grading:

Please answer the following questions (show calculations where necessary) and submit for grading:

1. In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm? Why?  

2. Johnson & Johnson has a ROE of 19% and a plowback ratio of 50%. If the coming year’s earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%.

What price do you expect Johnson & Johnson shares to sell for in three years?

3. Choose two firms of interest from fiance.yahoo.com, finance.google.com, or money.msn.com and download their financial statements. For each firm:

    a. Write the ROE, the number of shares outstanding, the dividends per share, and the net income.

    b. Compute the sustainable growth rate (g = b * ROE), where b equals the plowback ratio.

    c. Calculate the total amount of dividends paid (dividends * number of shares outstanding), the dividend payout ratio (total dividends paid/net income), and the plowback ratio (1 – dividend payout ratio).

    d. What does this information reveal about the ROE for the firms you selected?

Be sure to include the link for the financial statements that you select. 

Order the answer to view it

Assignment Solutions
Assignment Solutions