Question

Calculate the stock value of the following companies: SBX is a tech company with 1,525,000 outstanding shares and the following expected cash flows. Assume a 3% discount rate Year 1: $8,450,000 Year 2: $7,500,000 Year 3: $6,325,000 Year 4: $7,450,000 Year 5: $8,250,000 Year 6: $7,000,000 Year 7: $6,545,000 Year 8: $7,125,000 Stock Price: Assume this stock trades on the DOW. Assume the Dow's divisor is . 1474. If this stock's price changes by $4.50, by how much does the DOW change?

Answer 1

The stock price is $ 33.84, following is the working:

Year	Cash flow	Discounting Factor	Disc Cash Flow
1	$8,450,000	0.9709	$8,203,883.50
2	$7,500,000	0.9426	$7,069,469.32
3	$6,325,000	0.9151	$5,788,271.00
4	$7,450,000	0.8885	$6,619,228.51
5	$8,250,000	0.8626	$7,116,522.47
6	$7,000,000	0.8375	$5,862,389.80
7	$6,545,000	0.8131	$5,321,683.94
8	$7,125,000	0.7894	$5,624,540.79
	Total		$51,605,989.32

Shares outstanding = 1,525,000.

Total discounted cash flow / Total shares outstanding = 51605989.32/1,525,000 = 33.84

Also DOW's divisor is a numerical value used to calculate the level of the Dow Jones Industrial Average (DJIA). The DJIA is calculated by adding up all the stock prices of its 30 components and dividing the sum by the divisor.

If the sum of the prices of the 30 constituents of the DJIA is 4,001, dividing this figure by the Dow Divisor of 0.1474 would provide a level of 27,220 for the index.Using this divisor, every $1 change in price in a particular stock within the average equates to a 6.8 (or 1 ÷ 0.1474) point movement.

Therefore if the stock prices changed by $4.5, DOW would change by 30.529