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Briefly explain different valuation models

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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.

Reference no: EM132932892

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