CASE STUDY: Honda. Please present an explanation for every mathematical solution.
To begin, visit page 438 of your textbook and find Questions 25 and 26. You will be asked to download spreadsheets with the data necessary to answer the questions from the McGraw-Hill Irwin Online Learning Center. (Links to an external site.)
In these questions, you will be asked to calculate the intrinsic value of the company using the three-stage growth model and the free cash flow model. This will provide you with a good opportunity to observe differences in the approaches and help you decide which approach you prefer for which kinds of situations.
Compose your work in a .doc or .docx file type using a word processor (such as Microsoft Word, etc.)
PAGE 438 instructions below.
Recalculate the intrinsic value of Honda using the three-stage growth model of Spread- sheet 13.1 (available at www.mhhe.com/bkm; link to Chapter 13 material). Treat each of the following scenarios independently. (LO 13-2)
- a. ROE in the constant-growth period will be 9%.b. Honda’s actual beta is .95.
c. The market risk premium is 8.5%.
- Recalculate the intrinsic value of Honda shares using the free cash flow model of Spreadsheet 13.2 (available at www.mhhe.com/bkm; link to Chapter 13 material). Treat each scenario independently. (LO 13-4)
a. Honda’s P/E ratio starting in 2015 will be 13.5.
b. Honda’s unlevered beta is .7.c. The market risk premium is 8.5%.
ESSAY form and use references from book.