This assignment has two components: (1) An individual component (50%) to be completed individually on Blackboard, and (2) Agroup component (50%) to be completed in groups during and after your workshop.

Important:

. You must complete your Individual Component to take part in the Group Workshop  (there is no point in attending the workshop if you have nothing to bring to the workshop for discussion with your team members).

. You must attend the workshop to receive a grade for the group component.

. You are expected to work in the same group that you did in your last workshop.

The individual component is due at 8:00AM on Monday of the workshop week. The group component will commence during the workshop where staff will be present to help ensure you are on the right track. It will be due at the same time one week after your workshop. Please refer to the Timetables and Links tab on Blackboard for details of due dates.

After  submitting  your  group  component  work,  you  are  required  to  complete  the  Peer  Assessment individually on Blackboard to evaluate the level of contributions in various aspects made by your group peers. Your final workshop grade is adjusted for the Peer Assessment score given to you by your group members. The due date for the Peer Assessment is at the same time one week after the due date of your group report.

Preparation

The purpose of this workshop assignment is to complete a share valuation using different methods and consider trends in the industry. Tutorial 6 is a base for several parts of this workshop. Therefore, make sure you attend and understand the material covered during Tutorial 6. Further, make sure you have reviewed Chapter 6 from the Pressbook and attended and understood Lecture 4. Failing to do this will likely cause confusion and delay your progress in this assignment.

Problem

This workshop will give you the chance to see how our dividend valuation formula and P/E ratio works with publicly traded companies on NASDAQ. You will analyse the following four companies (stock symbols in bold in parentheses):

1.   PACCAR (PCAR)

2.   Honda (HMC)

3.   Tesla (TSLA)

4.   Shyft Group (SHYF)

You will value each of the companies under different approaches. For one of the questions, you should listen to the following podcast: The Economist - Changing gears – has the world passed “peak car” (available on Blackboard). Then, in your discussion groups, you will discuss your answers, the assumptions made in your calculations, the challenges the car industry is facing, the position of each of the companies in the changing industry and, if you had to choose, which company you would invest in. Finally, you will write a 1,000-word group report.

Required

PART 1 – INDIVIDUAL COMPONENT (due 8:00AM, Monday, 18 September 2023) (50% of final mark)

You will be valuing the shares at 31/12/2022 using 2 valuation methods: the Dividend Discount Model (DDM) (Q3-4) and P/E ratios (Q5). In Q1 and Q2, we first estimate two growth rates for a perpetual dividend growth. We use the average of these two growth rates in Q3 and 4 to estimate share prices. In Question 5 we use the P/E method to estimate the share price.

Question 1: Estimating a perpetual growth rate using EPS (5 marks)

Find all the four companies’ reported earnings per share (EPS) for the year ending 31 December 2022. Also, find the consensus EPS forecast for the years 2023, 2024 and 2025. You should use theNASDAQ websiteto obtain  the  information. You  should use  the  EPS  information  in  the  Earnings  tab. After collecting  EPS information, calculate the 3-year average of forecasted EPS growth rates for all these companies. If an EPS is missing, assume that it is equal to the average of previous years’ EPS. If you have other assumptions, justify them in a separate sheet named “assumptions” .

Question 2: Estimating a perpetual growth rate using historical dividends (5 marks)

Find all the four companies’ historical dividends for the years 2019-2022. You should use the NASDAQ website  to  obtain the information.   In  the  Dividend  History  tab,  you  can  find  dividends  paid by the companies.  You  should  use  the  Ex/EFF  DATE  (ex-dividend  date).  After  collecting  historical  dividend information, calculate the 3-year average of historical dividend growth rates for all four companies. If a company has a missing dividend for a given year, assume that it did not pay the dividend in that year.

Question 3: Estimating share prices using the 2022 dividends (5 marks)

In estimating share prices using the dividend, assume the following:

1)   The company’s dividends will grow in perpetuity at a constant rate equal to the average of (i) the 3- year average of EPS growth rates computed in Question 1, and (ii) the 3-year average of historical dividend  growth  rates  calculated  in  Question  2.  The  dividends  for  2022  can  be  found  on  the NASDAQ website, under the Dividend History tab.

2)   A required return of 8.21 % for PACCAR, 5.97 % for Honda, 9.59 % for Tesla, and 8.21 % for Shyft.

3)   If the average growth rate that you have calculated is negative, assume it is zero. If it is greater than the discount rate, use a revised growth rate that is equal to the discount rate minus 1%. Find the actual share price from the Summary tab on theNASDAQ website

Question 4: Estimating share prices using forecasted dividends (5 marks)

Repeat Question 3 above but this time estimate share prices using a forecasted 2023 dividend. We can forecast a dividend using a forecasted EPS and a dividend payout ratio (the proportion of EPS paid out as a dividend), where the forecasted dividend = forecasted EPS × dividend payout ratio). Assume a dividend payout ratio of 30% to forecast the dividend.

Question 5: estimating share prices using P/E benchmarking (5 marks)

An alternative method for valuing a company, especially for a non-dividend paying stock, is to use the P/E valuation multiple method. Re-value all four companies using the P/E ratio method (assume a valuation date of 31/12/2022). Use the industry forward P/E ratio available fromProf. Damodaran websiteas the benchmark P/E ratio to estimate share prices. (Forward PE is the ratio of price to the first-year forecasted EPS). If you are unsure of which Industry Name the companies fall under, make sure to click the “Download Detail” button on which companies are included in each industry. The download takes a minute or so to complete due to the file size. If you happen to have difficulty downloading the file, you can try switching to a different browser (Firefox, Google Chrome, Safari, etc.).

Question 6: Assumptions of the models (9 marks)

For each of the three valuations (Q3-5), what assumptions were made and how realistic are they? (Name and explain at least 1 assumption for each).

Question 7: Car industry (12 marks)

Based on the podcast: The Economist - Changing gears: has the world passed “peak car” (available on Blackboard), what are the two main challenges the car industry is facing? The podcast was recorded in 2020, has anything changed since then? Which of the companies do you think is best positioned to address the challenges, and why? (You will need to do additional research to answer the last two questions; make sure to reference appropriately – use either Harvard or APA style but just be consistent).

Question 8: Your choice (4 marks)

If you would invest in one stock, which one would it be? What was the most important factor in your decision?

Submission guidelines

The above items should be submitted via the Workshop 3 Individual Component on Blackboard, in which you should also attach your workings in the Excel file (xls or xlsx). An Excel template is provided. Do not upload workings in any other format. The Workshop 3 Individual Component on Blackboard is due at 8:00AM, Monday, 18 September 2023.

PART 2 – GROUP COMPONENT (2-HOUR TIMETABLED WORKSHOP + GROUP REPORT due exactly

one week after your actual workshop) (50% of mark)

In Workshop 3, you will continue to work with the same team members as in your last workshop. You can change your groups, but you must inform us in due time using the form to be provided soon. For those on Zoom, the groups and discussion boards will be available when you start your online workshops. The discussion board is used mainly for file sharing but can also be used for written communication for your group report. You must attend the workshop to get marks for this component and you must join the session within the first 10 minutes.

First ≈ 10min:

. Brief introduction to the workshop

. If you are enrolled as external students attending the workshop on Zoom, you will need to find your discussion board threads and upload your answers (i.e., Workshop 3 Individual Component quiz completed on Blackboard) to your own group’s thread – this is a crucial and necessary part of starting your group tasks.

Remaining workshop time: Review and discuss the different answers of your group members. Then, begin to brainstorm and write up the answers for your group report (up to 1,000 words):

1.   What  are  the estimated share prices for all four companies in Q3-5? A table summarising your findings is useful. (8 marks)

2.   For each of the valuations, what assumptions were made, how realistic are they, and how do they compare to the actual share prices? (8 marks)

3.   Some actual share prices have been much higher or lower than your valuation. Pick the stock that has the largest difference and explain what you think might be the reason for such a difference? List three reasons and explain. (8 marks)

4.   What are the main two challenges the car industry is facing according to the podcast? Has anything changed since the podcast? (8 marks)