A finished FIN-375 Topic 4 two-method equity valuation example, valuing one company from dividends and from a peer multiple, then solving for the assumptions behind the 13.35 gap. Searches like "fin 375 topic 4 assignment example", "fin375 topic 4 sample" and "fin-375 topic 4 example" land here.
What a finished FIN-375 Topic 4 two-method equity valuation looks like
The finished valuation works from illustrative figures. The company has just paid a dividend of 1.50, and the dividend model assumes 10 percent growth for three years, then 4 percent indefinitely, discounted at a 9 percent required return. Dividends of 1.65, about 1.82 and about 2.00 lead to a terminal value of about 41.53 at year three, and the present value comes to about 36.65. The multiples approach takes earnings of 2.50 and a peer median price-earnings ratio of 20, giving 50.00. The example does not average the two. It backs out what the multiple implies: the dividend model reaches 50 only if long-run growth is about 5.4 percent rather than 4, or if the required return is about 7.7 percent rather than 9. The multiple, in other words, carries more optimism about growth or less concern about risk.
How a FIN-375 Topic 4 example is structured
The valuation is laid out as two independent estimates and a reconciliation. It opens with the company's facts and each input labeled illustrative, including where the peer group comes from. The dividend section lists the three high-growth dividends, computes the terminal value at the end of year three from the fourth year's dividend, and discounts everything to today with the working shown. The multiples section explains the choice of peers and of earnings as the base, then applies the median ratio. A comparison table sets the two values side by side with the 13.35 gap. The reconciliation section solves for the growth rate and the required return that would close the gap, and converts the dividend value into its own implied multiple, about 14.7 times earnings, for a like-for-like check. The final paragraph lists the assumptions an analyst would have to defend before accepting either figure.
Two estimates built independently
The dividend value and the multiple value are computed without reference to each other, so neither can be quietly adjusted to agree with the other.
Terminal value dated to year three
The constant-growth step uses the fourth year's dividend and lands at the end of year three, and the example discounts it three periods, not four.
A peer multiple with its peers named
The ratio of 20 comes from a stated peer group, since a multiple borrowed from dissimilar firms imports their growth and risk without saying so.
The gap solved, not split
Closing the 13.35 difference would take long-run growth near 5.4 percent or a required return near 7.7, and the example reports both conditions.
Implied multiples compared like for like
Restated as a multiple, the dividend value is about 14.7 times earnings, which puts the disagreement in the peer group's own units.
Where marks go in FIN-375 Topic 4
Averaging the two values and reporting the midpoint is the error marked hardest here, because it buries the input the two methods disagree about and yields a figure neither supports. Terminal values discounted one period too far, or computed from the third year's dividend instead of the fourth, understate the dividend model by a visible amount. A peer multiple applied without saying which peers, or why, assumes the target shares their growth and risk. Papers that report both values and pick one offer no reason a reader could test. Saying nothing about how much of the total comes from the terminal value hides the answer's dependence on growth after year three, which here supplies most of it. Treating either value as a buy signal, with no market price beside it, turns a valuation into a recommendation it cannot support.
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Send the FIN-375 Topic 4 problems and the rubric your classroom provides, with the company data or case your section assigned. We write a custom example to them, with a dividend value and a multiples value built independently, the terminal value dated correctly, the gap solved for its cause and implied multiples compared, in 24 to 48 hours. The first one is free.
FIN-375 Topic 4 questions, answered
Why not average the two valuations?
Because a midpoint answers no question anyone asked. The dividend model and the peer multiple encode different beliefs about growth and risk, and a gap of more than 13 a share measures how far apart those beliefs are. The example keeps both figures and solves for the growth rate and required return that would bring them together, which turns the disagreement into two claims an analyst can test.
Why does most of the dividend value come from the terminal value?
Because the high-growth period lasts only three years, and everything after it is compressed into one figure. In the example the discounted terminal value is about 32 of the 36.65 total, nearly nine-tenths. That makes the long-run growth rate the most consequential input, which is why the reconciliation tests it first and why small changes to it move the answer so far.
Does the example say the stock is worth buying?
No. The company is a composite and every input is illustrative, chosen to show how two approaches can disagree and how the gap is explained. Whether any real share is worth buying depends on its actual price, prospects and risks, and on your own circumstances. The example shows the reasoning FIN-375 marks; it is coursework, not investment advice.