Business Finance Homework Help

For the company you chose:

Choice Hotels International Inc.: For my Financial Analysis research, I chose the company Choice Hotels International. I chose this company based on the amount of travel I have experienced over the past few years. I have reached a point where I am looking into investments, and this is one that has caught my eye. I’ve used many of the choice hotel lodging and recently became a preferred Choice Privilege member. Although, I have a new membership, the rewards are countless. I feel that this company will help me in the decision process of investing in this company and the longevity of the company.

Use concepts learned about present value to estimate a value of the company’s stock. See H-3 in Week 3’s Homework to get an idea of what you should do, as well as my posted example.

H3 – Value a Constant Growth Stock Financial analysts forecast Safeco Corp. (SAF) growth for the future to be 5 percent. Safeco’s recent dividend was $3.00. What is the value of Safeco stock when the required return is 14 percent?

g = 5% = 0.05

r = 14% = 0.14

D₀ = $3

D₁ = D₀(1 + g) = 3 (1 + 0.05) = 3.15

Using the Equation

= 3.15/ (0.14 – 0.05)

= 35

Use equation:

Constant growth model = P₀ =

D0 (1+ g ) i – g

Note that you will need to estimate the appropriate cost of capital or discount rate for your analysis based on the firm’s risk, based on its industry and individual characteristics. You will also need to estimate a growth rate for the firm’s Dividend, as well as finding what Dividend they have been paying (perhaps past Dividend history can help in estimating a growth rate). Sites such as GuruFocus and ReadyRatios may be useful. Provide explanations of how you determined each variable. Once you estimate the Stock price, compare it to the actual stock price from current markets. Comment on the comparison (is it lower or higher and why).