Walmart Valuing Essay
1. Background of Wal-Mart stores, Inc.
2. Valuing approach
3.1 Dividend Discount model
3.2 Capital asset pricing model
3.3 The Price/Earning multiple approach
1. Background Wal-Mart stores, Inc.
Wal-Mart was the world’s largest retailer, operating more than 8,400 stores worldwide. Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at ”everyday low prices”.
In general merchandise area, Wal-Mart’s competitors included Sears and Target; In terms of specialty retailers, its competitors included Gap and Limited; Department store competitors included Dillard’s and Macy’s; Grocery store competitors …show more content…
Dividend per share in 2010=$1.090 (From Exhibit3)
Dividend per share in 2011(expected)=1.090*(1+5%)=$1.1445
3.Investor’s required rate of return (Ke)
4. Calculation p0= the current value of a firm’s stock price 3.2 Capital asset pricing model (CAPM) * Method Introduction
The capital asset pricing model is one of the popular methods for estimating an equity investor’s required (or expected) return. Under this model, equity investors require a return on what can be earned on risk-free investments plus a risk “premium”. The general market risk premium for holding a diversified portfolio of equities was the difference between the expected return on the market (in this case considered to be the S&P500) minus risk-free rate (in this case considered to be the long-term government bond returns).
Then, the expected return on an asset under the CAPM is: E(ri)= Rf+β［E(Rm)-Rf］
* Source of data 1. Risk-free rate (Rf)
In this case, the current long-term (10-year) government bond yield was considered to be the risk-free rate, which was 3.68%.
One thing should be noticed that the risk-free rate