{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Day 6-Part 2 Slides-Ch 7-7.7.11

# Day 6-Part 2 Slides-Ch 7-7.7.11 - Day6:Part2.2...

This preview shows pages 1–10. Sign up to view the full content.

Business Management 301 Day  6: Part 2.2 Chapter 7: Stock Valuation July 7, 2011

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

View Full Document
Thought for the Day Elder Ballard:   “I am so thoroughly  convinced that if we don’t set goals in our  life and learn how to master the technique  of living to reach our goals, we can reach a  ripe old age and look back on our life only  to see that we reached but a small part of  our full potential.” What are the basic principles of goal- setting? Are your goals meaningful? Do you have any BHAG’s?
Common Stock Valuation (Multiple Holding Periods) Constant Growth Model: Assumes common stock dividends will  grow at a constant rate into the future. Can we value a perpetuity that grows at a  constant rate??

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

View Full Document
Common Stock Valuation (Multiple Holding Periods) Constant Growth Model: Assumes common stock dividends will  grow at a constant rate into the future. (aka “Gordon Growth Model” or GGM) V cs 0 = D 1 k     -  g cs
Constant Growth Model: Assumes common stock dividends will grow at a  constant rate into the future. D 1 :  the dividend at the end of period 1.  [D 1 = D 0 *(1+g)] k cs :  the required return on the common stock. g:  the constant, annual dividend growth rate Remember:  Sustainable Growth = g* = ROE x (1-b) V cs 0 = D 1 k     -  g cs b = payout ratio (i.e. dividends/NI)

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

View Full Document
Justice stock recently paid a  \$5.00 dividend .   The dividend is expected to  grow at 10%   per year indefinitely.    What would we be willing to pay if our  required return  on Justice stock is  15% ? Formula: D 1  = D o *(1+g)  D o    = \$5,    so    D    = \$5,    so    D 1     =  5 (1.10)  =  \$5.50     =  5 (1.10)  =  \$5.50 Gordon Growth Model Example #1
Justice stock recently paid a  \$5.00 dividend .  The dividend is  expected to  grow at 10%  per year indefinitely.  What would we be willing to pay if our  required return  on  Justice stock is  15% ? D = \$5.00   g   = 10% k cs  = 15%   V cs  =              =               =  \$110 D 0 *(1 + g)           5.50       k cs   -   g 0.15  -  0.10 Gordon Growth Model Example #1 D 1

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

View Full Document
Berken stock recently paid a  \$3.50 dividend .   The dividend is expected to  grow at 8%  per  year indefinitely.    What would we be willing to pay if our  required  return  on Berken stock is  11.5% ? Formula: D 1  = D o *(1+g)  D o    = \$3.50,    so    D    = \$3.50,    so    D 1     =  3.50 (1.08)  =  \$3.78     =  3.50 (1.08)  =  \$3.78 Gordon Growth Model Example #2
Berken stock recently paid a  \$3.50 dividend .  The dividend is  expected to  grow at 8%  per year indefinitely.  What would we be willing to pay if our  required return  on  Berken stock is  11.5% ?

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