The assignments in FINM1416 consist of two components: an individual component (50%) and a group component (50%). The individual component is due before the first workshop session commences. The group component will commence      during the Workshop (see timetable) where you will work with your team and staff is there to help ensure you are on the right track.

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 attended and understood the material covered during Tutorial 6. Additionally, make sure you have reviewed Module 6 on Edge      and attended and understood Lecture 4. Not doing this will likely cause confusion and extend the time you need to   spend on this workshop.

Requirements

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:

1.    Toyota Motor Corporation ™

2.    Ford (F)

3.    Electrameccanica (SOLO)

4.    Tesla (TSLA)

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,               Assessment, Workshop 3 folder). 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 1000-word group report.

Part 1 – Individual Component (due Monday 19 September at 11:30am). 50% of final mark.

You will be valuing the shares at 31/12/2022 using 2 valuation methods: the dividend discount model (Q3-4) and PE 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 PE 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 last 4 quarters as published. Also, find the         consensus EPS forecast for the years 2023, 2024 and 2025. You should use the NASDAQ website to obtain the             information. You should use the EPS information in the Earnings tab. Once the EPS information is collected, compute the three-year average forecasted EPS growth rate for all four companies. If an EPS forecast is missing, make an          assumption based on research and justify in a separate tab named “assumptions” .

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

Find all the four companies’ historical dividends (EPS) for the years 2018-2021. You should use the NASDAQ website  to obtain the information. You should use the information in the Dividend history tab. Once the historical dividend    information is collected, compute the three-year historical average dividend growth rate for all four companies. Note that the NASDAQ website contains an “unavailable” Electrameccanica and Tesla’s dividend history (missing); please   use a dividend of $0 for all years as they have not pay any dividends in yet.

Question 3: estimating share prices using the 2021 dividends (5 marks)

Assuming:

- the company’s dividends will grow in perpetuity at a constant rate equal to the average of: 1) the three-year             average EPS growth rate computed in question 1, and 2) the three-year average historical dividend growth rate in      question 2. The dividends for 2021 can be found on the NASDAQ website, under the Dividend History tab. Note that on the NASDAQ website there is no data on dividends for Electrameccanica and Tesla; please use a dividend of $0 for both as they have not paid dividends for the period under analysis.

Use a required rate of return of 11% for Toyota, 10% for Ford, 20% for Electrameccanica and 16% for Tesla.

What would you estimate the share price to have been at 31/12/2021 for all stocks? Which of the company’s stock would you have bought?

For a growing perpetuity we use a denominator equal to: r-g. If the average growth rate (g) calculated for a company is greater than its discount rate (r), then use a revised growth rate equal to: Discount rate - 1%.

If the average growth rate (g) calculated for a company is negative, then use a growth rate of zero. Find the actual share price using the Summary tab on the NASDAQ website.                                         Question 4: estimating share prices using forecasted dividends (5 marks)

Repeat Questions 3, but estimate share prices using a forecasted 2022 dividend. We can forecast a dividend using a   forecasted EPS and a dividend payout ratio (the proportion of EPS paid as a dividend), where the forecasted dividend is (forecasted EPS x dividend payout ratio). Assume a dividend payout ratio of 30% to forecast the dividend.

Question 5: estimating share prices using PE benchmarking (5 marks)

An alternative way to value a company is using the PE ratio, especially for a non-dividend paying stocks. Re-value all four companies using the PE ratio method (assume a valuation date of 31/12/2021). Use the industry Forward PE    ratio from  Prof. Damodaran website as the benchmark PE ratio to estimate share prices. (Forward PE is the ratio of price to the first year forecasted EPS).

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 have to do additional research to answer the last two questions, make sure to reference appropriately – use Harvard style or APA, just be consistent; references are not counted towards the word limit).

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 answers to the above questions should be submitted via the link on Blackboard, Workshop 3 Individual          Component. This is setup as a Quiz, and you should also attach your excel spreadsheet with your workings (xls or xlsx). An Excel template is provided. Do not upload workings in any other format.

The Workshop 3 Individual Component is due on Monday 19 September at 11:30am.