# Ch18 - Equity Valuation Models Ch18 Models of Equity...

This preview shows pages 1–14. Sign up to view the full content.

Equity Valuation Models Ch18

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Basic Types of Models Balance Sheet Models Net Asset Value of the B/S Dividend Discount Models Price/Earning Ratio Models of Equity Valuation
Intrinsic Value Variety of models are used for estimation Market Price Consensus value of all potential traders in the security market Trading Signal IV > MP Buy IV < MP Sell or Short Sell IV = MP Hold or Fairly Priced Intrinsic Value and Market Price

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
V D k o t t t = + = ( ) 1 1 V 0 = Value of Stock D t = Dividend k = required return Dividend Discount Models: General Model
V D k o = Stocks that have earnings and dividends that are expected to remain constant. Preferred Stock No Growth Model Example: E 1 = D 1 = \$5.00 k = .15 V 0 = \$5.00 / .15 = \$33.33

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Vo D g k g o = + - ( ) 1 E 1 = \$5.00 b = 40% k = 15% (1-b) = 60% D 1 = \$3.00 g = 8% V 0 = 3.00 / (.15 - .08) = \$42.86 Constant Growth Model: Example
g ROE b = × g = growth rate in dividends ROE = Return on Equity for the firm b = plowback or retention percentage rate (1- dividend payout percentage rate) Estimating Dividend Growth Rates

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
P/E Ratio is a function of two factors Required Rates of Return (k) Expected growth in Dividends

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern