Wal Mart An Investment Advisor Of A Brokerage Firm

Wal-Mart was founded by Sam Walton and is one of the world’s largest retail stores operating in all 50 states as well as internationally in several countries. The retailer giant employs 2.1 million people who serve roughly 200 million customers per week. Sabrina Gupta is an investment advisor of a brokerage firm and is studying stocks and valuation of Wal-Mart Stores, Inc. Gupta is attempting to assess the valuation of Wal-Mart stocks to determine if she should urge her new and existing clients to add the stocks to their portfolios. Several valuation techniques were applied including perpetual dividend growth model, dividends and a terminal value, the three-stage approach, price/earnings approach, and capital asset pricing model. A. Perpetual Dividend Growth Model The current value of Wal-Mart stock is the discounted value of all future expected dividends at the required expected rate of return. The constant growth dividend discount model must be used in order to facilitate the estimation process. According to the constant growth dividend discount model, the current price (Po) of the stock is calculated by dividing next year’s expected dividend (D1) from the resultant obtained by subtracting the expected perpetual dividend growth rate (g) from the required rate of return (Ke): Po = D1/(Ke – g) The annual Wal-Mart dividend for year 2011 was $1.21 and the constant perpetual growth dividend was estimated at 5.0%. By using the given current stock price $53.45, the investor’sShow MoreRelatedNotes On Securities Markets And How Securities2608 Words   |  11 Pages IDC4UV: Finance – Assignment Securities Markets How Securities Are Traded Part A: Knowledge 1. Explain the concept of mutual funds. Why would investors invest in mutual funds? 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