Toyota Motor Corporation (TYO: 7203; NYSE: TM) is one of the world’s largest vehicle manufacturers. The company’s most recent fiscal year ended on 31 March 2008. In early May 2008, you are valuing...

Toyota Motor Corporation (TYO: 7203; NYSE: TM) is one of the world’s largest vehicle manufacturers. The company’s most recent fiscal year ended on 31 March 2008. In early May 2008, you are valuing Toyota stock, which closed at ¥5,480 on the previous day. You have used a free cash flow to equity (FCFE) model to value the company stock and have obtained a value of ¥6,122 for the stock. For ease of communication, you want to express your valuation in terms of a forward P/E based on your forecasted fiscal year 2009 EPS of ¥580. Toyota’s fiscal year 2009 is from April 2008 through March 2009.

1. What is Toyota’s justified P/E based on forecasted fundamentals?


2. Based on a comparison of the current price of ¥5,480 with your estimated intrinsic value of ¥6,122, the stock appears to be slightly undervalued. Use your answer to question 1 to state this evaluation in terms of P/Es.