Stock Investor Pro Questions

a. Determine Ke, the required rate of return, for Teco Energy, Inc. Use the Custom Field Editor in Stock Investor Pro to calculate the required rate of return using Formula 7–2 from Chapter 7. Use 5 percent for RF and assume (KM 2 RF), the equity risk premium, is 6 percent. Thus Ke 5 0.05 1 (0.06).
b. Use the Custom Field Editor to enter the constant growth model, P0 5 [D0(1 1 g)]/(Ke 2 g). Use the dividend for the last fiscal year (Dividend Y1) for D0. Use the compound growth rate in earnings per share over the past five years for g (EPS Growth 5yr), and Ke from part a to estimate the price per share for Teco Energy, Inc. Compare this estimate to the latest price (Price) in the Stock Investor Pro database for Teco Energy, Inc.

The constant growth model is appropriate only when two conditions are met: the growth rate is constant and Ke, the required rate of return, is greater than g, the growth rate. Create a View using the View Editor in Stock Investor Pro to analyze the degree to which these two conditions are met for the companies in the Grocery Store Industry (SIC 541x). Specifically, (a) analyze the percentage change in total revenue for the seven years for which data are available, and (b) compare Ke created in exercise 1a to g as measured by the compound annual percentage change in total revenues from seven years ago (Sales-Growth 7yr) to the last full year (Sales-Growth 1yr).

a. Select the firms in the Computer and Office Equipment industry (SIC 357x) that have (1) positive EPS for the last 12 months (EPS 12m) and for the last fiscal year (EPS Y1), (2) EPS for the last fiscal year (EPS Y1) that is greater than EPS from the prior year (EPS Y2), (3) EPS two years ago (EPS Y2) greater than EPS three years ago (EPS Y3) so that EPS Y2 . EPS Y3, and (4) a greater percentage annual increase in EPS for the last fiscal year (EPS Y2 to EPS Y1) than the previous annual increase (EPS Y3 to EPS Y2).
b. Use the Custom Field Editor to determine the high PE ratio and low PE ratio over the last 12 months, so that High PE 5 high price for last 12 months/EPS 12m and Low PE 5 low price for last 12 months/EPS 12m.
c. Use the Custom Field Editor to enter a formula to project the trailing 12-month EPS (EPS 12m) forward at the compound annual growth rate in EPS over the previous two years (EPS-Growth 2yr).
d. Multiply the High PE and Low PE created in part b by the projected EPS created in part c to get an estimated high and low price.
e. Create a view using the View Editor that shows the estimated high and low prices created in part d and the actual price (Price) for all the firms selected in part a. Print this View report.