| 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. | ||||||||
| Assume a tax rate of 30%. Assume a growth rate of 3% in comprehensive income and book values from Year +6 onwards. | ||||||||
| Required: | ||||||||
| 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 | ||
| Dividends | ||||||||
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