Estimating the Inputs

Estimating the Inputs - 11-1Estimating the Inputs: k and...

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Unformatted text preview: 11-1Estimating the Inputs: k and gValuation procedure is the same for securities around the worldThe two most important input variables are :The required rate of return (k) The expected growth rate of earnings and other valuation variables (g) such as book value, cash flow, and dividends These two input variables differ among countries in the world11-2Required Rate of Return (k)The investors required rate of return must be estimated regardless of the approach selected or technique appliedThis will be used as the discount rate and also affects relative-valuationThree factors influence an investors required rate of return:The economys real risk-free rate (RRFR)The expected rate of inflation (I)A risk premium (RP)11-3Required Rate of Return (k)The Economys Real Risk-Free RateMinimum rate an investor should requireDepends on the real growth rate of the economy(Capital invested should grow as fast as the economy)Rate is affected for short periods by tightness or ease of credit markets11-4...
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This note was uploaded on 01/24/2012 for the course FIN 4360 taught by Professor Davidbray during the Spring '12 term at Kennesaw.

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Estimating the Inputs - 11-1Estimating the Inputs: k and...

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