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Suarez Manufacturing Impact of a proposed risky in investment on stock value

Suarez Manufacturing Impact of a proposed risky in investment on stock value. Vu Huong Giang - MA0N0211. Case. Early 2010, CFO had to assess the impact of a proposed risky investment on the firm’s stock value Annual dividends in 5 years (2005-2009): 2009 $1.90

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Suarez Manufacturing Impact of a proposed risky in investment on stock value

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  1. Suarez ManufacturingImpact of a proposed risky in investment on stock value Vu HuongGiang - MA0N0211

  2. Case • Early 2010, CFO had to assess the impact of a proposed risky investment on the firm’s stock value • Annual dividends in 5 years (2005-2009): • 2009 $1.90 • 2008 1.70 • 2007 1.55 • 2006 1.40 • 2005 1.30

  3. Case • Expected dividend by the end of 2010 = $2.09 • Required return = 14% • Historical annual rate of growth will continue in the future => constant rate => Current value per share = ?

  4. Case • Calculating g – constant rate of growth: D2005/D2009 = 1/(1+g)4 = PIVFg,4 • PIVFg,4 ~ 0.683 • g = 10% • current value P0 = D2010/(rs – g) = 2.09/ (0.14 – 0.10) = $52.25

  5. Present Value Interest Factors for $1 discounted at i percent

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