VALUING WAL-MART STOCK Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

VALUING WAL-MART STOCK Case Solution

Determine the intrinsic value of Wal-Mart (price P0) using the dividend discount Model (DDM). Assess the value based on two forms of the DDM: the constant growth version, an assessment based on three years of projected dividends and a projected future stock price. Clearly state any assumptions you make to calculate the intrinsic price, including an estimation of Wal-Mart investor required returns from the Capital Asset Pricing Model (CAPM).

The dividend discount model relates the current share price to the current value of its future cash flows. It depends on projections of potential capitalization rates of the extra cash flows and company growth rate. The change in capitalization rate or growth rates will reflect the change in intrinsic value for the stock.

valuing walmart stock case solution

Three Intrinsic values of Walmart have been calculated using dividend discount model. The first reflects its constant growth version; second intrinsic value was calculated by taking 17 years of data and the last intrinsic value was calculated using the three years of data.
The first intrinsic value of Walmart is 18.9 using dividends at perpetuity.
The intrinsic value was calculated using the formula P0=D1/(Ke– g).
Taking D1 as 1, The Dividend from the year 2010 was taken

Ke = 19.65%

The value of expected investors’ rate of return is calculated using data of 2010, this return on equity is CAPM, whichwe calculated using formula (net income/sales)*(sales/ total assets)*(total assets/ equity).

CAPM= .035*2.37*2.34
= 19.6%

While the dividend rate is 13.8%
By using formula P0=D1/(Ke– g), we get 18.86

The second intrinsic value of Walmart is calculated by using 17 years data provided in excel sheet is 27.7.
Using the formula P0=D1/(1+Ke)1+D2/(1+Ke)2+….+Dn/(1+Ke)n+Pn/(1+Ke)n
Third intrinsic value is 53.6 by using the terminal value and a data set of three years.
The. values taken in this case are calculated in the excel sheet provided with write-up.

Dividendyield 2%
Rf 3.68%
Rm 5%
β 0.665

ke 20%
g 14%
D 1.09
Po (perp) 18.86420072

P0 - 17 years 27.68471533
P0 - 3 years 53.63364516........................

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