FN-401 Introduction to Corporate Finance

FN-401 Introduction to Corporate Finance
Professor Page-Hoongrajok

PROBLEM SET 4
100 points

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What is the difference between the market price of a stock and the fair value or fair price of a stock?

Walmart currently pays a dividend of $1. The company’s goal is to increase dividends by 2% each year. First, what will the dividend be in 20 years? Second, use the dividend discount model to find the fair value of Walmart stock today. Let’s say the relevant discount rate is 5%.

One of your first assignments as a financial analyst at Fidelity Investments is to value the stock of Tesla. Unfortunately, Tesla hasn’t paid any dividends yet so we can’t use the dividend discount model. But you do know that the average price-earnings (PE) ratio for the car manufacturing industry is 100 and you also know Tesla’s earnings-per-share (EPS) is $5. Using the PE valuation method, what is the present value (fair price) of Tesla’s stock?

Find and read an article from a reputable news source (Financial Times, Bloomberg, Wall Street Journal, Barron’s, etc.) that discusses a corporate governance issue. Briefly summarize the article and how it relates to corporate governance.

Find and graph stock price data for Netflix. One place to find this data is by going on finance.yahoo and type in your company’s name in the search bar. Then, click on the “historical data” tab. Graph either the daily stock price for the past 30 days or monthly stock price for the past year (you may use either the opening price or closing price). Paste the graph you made below. Based on this data has Netflix been a good investment in the past year?

Identify one stock market index that is not based on U.S. listed companies. How is the index constructed? In other words, what types of companies make up the index?

What is the difference between brokers and dealers (or designated market makers)?

What is the bid-ask spread? The bid-ask spread can be seen as a reward to dealers or designated market makers for providing what to the OTC or exchange?