Reference no: EM132932892

Estimate valuation models

Briefly explain different valuation models (asset based and income based) and the most suitable model to reflect the firm's worth. Estimate the value of company's share using:

DIVIDEND VALUATION MODEL (DVM)

Capital Asset Pricing Model (CAPM) is needed to estimate the required rate of return or discount rate. CAPM requires the estimation of three components; beta, risk free rate and risk premium. Hence, you are required to calculate the following:

1. Beta: Attach the Beta's calculation as an appendix (you must not pick a beta value estimated elsewhere and use it in your report).

2. Risk-Free Rate: You may use 10 year's government bond yield as a proxy for the risk-free rate. Indicate any advantages or disadvantages if there are any.

3. Market Risk Premium: You must explain how you derive the estimation and any assumption that is done.

Note: You may subtract the risk free rate from the expected market return and arrive at your market risk premium.

Important points to be covered in Part 2:

• Explain any assumptions made in implementing the estimations.

• Explain how you arrived at the variables that is used (e.g. provide justification/motivation of how you arrive at n % growth rate).

Part 3: Discuss the value or price of the company

Comment on your valuations from part 2, including a discussion of possible explanations of why your valuations differ from the recent share price. If appropriate, discuss why other models may be unsuitable for valuing the company.