Compute the required return to equity and WACC

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Reference no: EM133095227

Simulation

Use a single-stage dividend discount model to estimate the required return to equity and WACC for Alliant Energy Corporation. The historical dividends for this company are in the next worksheet.

Based on your understanding of the dividends, tread the forward-looking growth rate as stochastic. In addition, treat the tax rate as stochastic. Using the method we used in class, create a covariance matrix for these two inputs. Create a button that, when clicked, will simulate 100 WACC values and put them in column R. Compute the mean and standard deviation of the WACC.

You will need to do the whole simulation process, Cholesky and all. I have added the Cholesky code to a module in this file, so you do not need to copy it from the website.

Multistage

Use a THREE-stage total cash flow to equity model to compute the required return to equity and WACC for Dollar Tree (DLTR). Let the first growth rate apply to the first three years, the second to the following 4. Then have a long-term growth rate.

I have not given you the growth rates. Figure out a reasonable way to guess/estimate these and report the method you used in a text box. There is no single right answer for this, so use some creativity.

Free CashFlow
Continue your investigation into Dollar Tree by computing the (single stage) Free Cash Flow to Equity version of Re and the WACC.

In a text box, compare the FCFE estimates with the multistage TCFE you did in the previous tab.

Coment on any assumptions you made or difficulties you had with either approach.

Attachment:- Simulation.rar

Reference no: EM133095227

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