1.It is a widely accepted aspect that a company`s performance is a keydriver of its share price, and it majorly relies on the long-runperformance of a company. For instance, a company like Apple wellestablished in the market registered EPS of $8 as compared to $5 asexpected by the market. Since Apple is a well-established company, itdoes not need to make any new investments in the market for theadditional $3 gained from the earnings. It will likely pay out thedividends or stock repurchase. A shareholder in the company willreceive an additional $3 per share that results to increase in thetotal gross value of holdings. On the other hand, a company that isnot mature will likely hold its payouts to a future period this isbecause it aims to establish itself by incurring more investmentcosts. It is the same position postulated by TFC that is on a move toexpand its operations further (Markets.news.com.au, 2015).
2.The constant growth model takes into perspective the followingfactors of uttermost essence in stock valuation.
Dividendsin the present period ($10)
Requiredrate of return (15%)
Hencestock price = (10 * (1 + 0.1))/ (0.15 – 0.1) = 22
Thestock price of TFC is stipulated to trade at $220
Thestock is neither undervalued nor overvalued this is because the twoemployees come with an authentic report that postulates the exactprice with an accuracy of 99%. For instance, the real value in themarket stands at $220.65 while the attained price was $220(Markets.news.com.au, 2015). The small difference accrues from theapproximations that made in the calculations. It is this value thatLinda proofs that trends in the market, hence it is an efficientanalysis undertaken by the two employees.
Markets.news.com.au,.(2015). TFCEarnings | News.com.au.Retrieved 29 January 2015, fromhttp://markets.news.com.au/Newscorp/Company/EarningSummary.aspx?SecId=TFC