SUAREZ MANUFACTURINGIMPACT 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 2008 1.70 2007 1.55 2006 1.40 2005 1.30
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 = ?
Case
Calculating g – constant rate of growth:D2005/D2009 = 1/(1+g)4 = PIVFg,4
Þ PIVFg,4 ~ 0.683Þ g = 10%Þ current value P0 = D2010/(rs – g)
= 2.09/ (0.14 – 0.10) = $52.25
Present Value Interest Factors for $1 discounted at i percent