Stock Price Assignment | Homework For You

An analyst following Campbell Inc. created the following full year forecasts for the first five years.
The current equity beta for Campbell is 0.9. Assume a market risk premium of 5% and a risk free rate of 3%.
The current market value of Campbell’s equity and debt is $4,000 million and $2,000 million respectively.
Assume that Campbell’s a capital structure will change to 80% debt (with a pretax borrowing cost of 9.0%)
and 20% common equity in the future.Homework For You
Assume a tax rate of 30%. Assume a growth rate of 3% in comprehensive income and book values from Year +6 onwards.
Estimate the Stock Price using the Dividend Valuation Model, assuming 400 million shares oustanding
and mid-year discounting of dividends.
Current Year (in $ million) Projected (in $ million)
Year +1 Year +2 Year +3 Year +4 Year +5 Year +6
Comprehensive Income 3,814 4,356 4,784 5,029 6,321 7,349
Common Shareholders Equity
Paid-in Capital 16,500 16,500 16,500 16,500 16,500 16,500
Retained Earnings 72,458 73,000 76,000 76,500 78,000 79,000
Treasury Stock -36,000 -39,000 -40,000 -45,000 -50,000 -52,000
AOCI 9,000 9,000 9,000 9,000 9,000 9,000
Total Common Equity 61,958 59,500 61,500 57,000 53,500 52,500

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