Valuation of XYZ Corporation Using Market-Based Approaches

Very Hard Equity Valuation Applications Market-based Valuation

XYZ Corporation is a publicly traded company in the technology sector. Over the past five years, XYZ's net income has steadily increased at an average annual rate of 15%. Recently, the firm has provided guidance suggesting that it expects this growth rate to accelerate to 20% over the next five years due to expanded product lines and entering new markets.

Currently, XYZ's price-to-earnings (P/E) ratio stands at 25, while the industry average P/E ratio is 30. XYZ's dividends have historically grown at 10% annually, and the company plans to increase dividends at the same rate as its earnings over the next several years.

Using market-based valuation approaches, which of the following would you recommend as the most appropriate valuation method for estimating XYZ's intrinsic value?

Use a price-to-earnings (P/E) multiple based on the industry average.

Use the dividend discount model (DDM) based on the expected growth rate of dividends.

Use a discounted cash flow (DCF) model reflecting the accelerated growth rate.

Hint

Submitted971

Correct796

% Correct82%