Using the companys Return on Equity (ROE) and dividend payout ratio, estimate its Sustainable Rate of Growth (the growth in assets that it can achieve while keeping its capital structure constant and without selling new shares). Is this rate consistent with the companys recent history, managements stated objectives, and analysts forecasts?

The objective of the assignment is to integrate your knowledge of financial analysis and valuation concepts, and your ability to access relevant information about a specific industry and company on the internet.Pending more specific details and resources, here are some of the questions you need to address in your report:

1. Using the companys Return on Equity (ROE) and dividend payout ratio, estimate its Sustainable Rate of Growth (the growth in assets that it can achieve while keeping its capital structure constant and without selling new shares). Is this rate consistent with the companys recent history, managements stated objectives, and analysts forecasts?

Yahoo!Finance provides analysts one-year and five-year growth estimates under the Analysis tab.

2. Estimate the companys cost of equity using the two approaches described in Chapter 12: the Dividend Growth Model (see also Chapter 7) and the Security Market Line (SML) approach (see also Chapter 11). Which method is more appropriate for the company? Compare the appropriate cost of equity to the ROE.

If the company pays dividends, you can estimate the cost of equity using the dividend discount model per Chapters 7 and 12 (and applying the growth rate you calculated in #5 above). Whether or not the company pays dividends, you can use the CAPM/SML formula to estimate the cost of equity/required return per Chapter 11. You will need this for #7 anyway! (Hint: get the beta from Yahoo!Finance. Assume that the risk- free rate (on 10-year Treasuries) is 3% and the expected return on the market is 10% — i.e. the MRP = 7%.)

EXPLAIN YOUR WORK, RESEARCH AND CALCULATIONS

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