Sherwin Williams (SHW0 - Research Paper Example

There are various methods which have been postulated by scholars such as Gordon; Gordon postulated a growth model which is used to ascertain or estimate the value of stock in the future. In the Gordon growth model it is assumed that the company cash flows experiences constant growth t to perpetuity from the period immediately proceeding the valuation date. In the Gordon method the present value of the terminal benefit is then added to the summation of the present value of all project cash flows so as to arrive at the total value of stock (Stavans, 2007).

The second approach to stock valuation in order to ascertain the total returns to the investor is the constant growth model. Using model it is assumed that earnings of the stock a constant growth, that is, dividend experience a constant which is usually ascertained from the growth in the earnings of the company then using a capitalization rate which is given by the difference between the company cost of equity and the growth. Then, the expected earning to the stock (then multiplied by one plus the growth rate) is divided by the capitalization rate so as to arrive at the total earnings attributed to the stock.

Then, this figure is added to the current market so as to ascertain the total returns that would accrue to the investor at the end of the five year period. In order to achieve the objectives of this paper we will employ a hybrid of Gordon growth model so as to arrive at the total returns that the stocks of Sherwin Williams company. This method was adapted due to it is consideration of the time value of money concept. Moreover, this method is more efficient than the constant growth assumption method.

Total present value of earnings = 8.3431 plus 86.00 assuming the market price of shares grows at the same rate like the dividend such that the market price per share at the end of five years will be 86 (1.11)5 = 145.57 the present value would be 145.57 x 0.5428 = 79.02. Therefore, the total return