In step 2 you will get the current price of the stock. I should caution you a little bit; As you know after earnings or after big events a price sometimes swings in a certain direction and often goes back up/down to the level it was before the event. If your current price is taken from one of these major swings it might distort your analyzes a little bit. Preferably what you want to do is get the stock’s price when it is “stable” meaning it hasn’t gone up or down an abnormal amount during the day. Depending on the company you are valuing this shouldn’t happen very often, but sometimes abnormal price movements do happen so just a word of caution.
For the purposes of this study; the current price of the stock is considered the present value of the costs. We will get to this topic right at the end when we have completed our entire valuation.
In this example I’m going to use a price of $19.42. Just like we logged our CAPM calculations on our diagram, we do the same for the price:
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