As part of a larger financial analysis project into Starbucks I need to Analysis of intrinsic value...

Question

As part of a larger financial analysis project into Starbucks I need to Analysis of intrinsic value relative to market.We will be using McDonalds as the relative marketI have attached a file from the tutor which specifies how intrinsic value is calculated.Once theintrinsic value is calculated i need an analysis on the data is the company over or under valued based on intrinsic value alone

Preeta · Accepted Answer

INTRINSIC VALUE:
Intrinsic value is something which represents the assumed asset value of a company (Batavia and Michael, 2017). It actually depicts the perception of the investors towards the company and its assets that is the actual worth of the company and its shares. If the investors want to buy the stock of a certain company then it checks the intrinsic values. 
STARBUCKS:
In the annual report of 2019, the company has reported 18,000 shareholders and in the same year it has paid $1.49 per share. The company pays dividend on annually basis since 2015 but before that it used to pay the dividend at quarterly basis that is four times a year. The table below shows the historical data of the dividend payment by the company:
	Year
	Annual Dividends Paid ($ per share)
	2019 
	1.49
	2018
	1.32
	2017
	1.05
	2016
	0.85
	2015
	0.68
	2014
	1.10
	2013
	0.89
	2012
	0.72
	2011
	0.56
	2010
	0.36
The historical data of the dividends paid by the company showed that there was a growth in the dividend payment, throughout the past ten years, the only exception being in 2015, when the dividend payment rate dropped compared to previous year. 
The growth rate of the dividend has been calculated using excel, which has been shown in the attached file. The regression analysis of the data revealed that the dividend growth rate is 0.77%. 
So, expected dividend for the year, 2020 = (1.49*100.77%)
						= 1.50 per share
CAPM:
Capital asset pricing model helps to determine the required return that can be expected from the investment in the stock of a certain company. 
Expected Return on the investment = Risk Free Rate + (Beta * Market Risk Premium)
Where, Market Risk Premium = Expected Return of the market - Risk Free Rate
Currently the risk free rate is 0.73% (YCharts).
Current beta of the stock of Starbucks is 0.72 (Yahoo Finance).
Expected Return of the market is 6.30% (Perianan, 2020).
Expected Return on the investment = 0.73 + [0.56 * (6.30 – 0.73)]
					= 3.85 %
DDM:

As part of a larger financial analysis project into Starbucks I need to Analysis of intrinsic value relative to market.We will be using McDonalds as the relative marketI have attached a file from the...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment