The client is very interested in European stocks since he feels the weaker Euro wil be good for exports:
1. Given the client’s view above, whichi stock would be the best choice out of Nestle, British Gas or Ferrari? Why?
2. German company Volkswagen is one of their national champions. Describe the history of this company and its recent emissions scandal.
3. Assume Rrf = 1.5% and the return on market Rm = 8%. Using the company’s current beta, calculate its required return using CAPM.
4. For D0 use Volkswagen’s last full year dividend in Euros. Assume a dividend growth rate of 3% which will stay constant into perpetuity. Value the stock using the Gordon model, using the CAPM rate of return derived in (3).
5. Assuming the dividend grows by 5% for 3 years and 3% thereafter, value the stock again using the multi-stage DDM model, discounting the cashflows by the CAPM rate of return derived in (3).