Valuation with Temporary Supernormal Growth

Valuation with Temporary Supernormal Growth - 11-1Valuation...

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Unformatted text preview: 11-1Valuation with Temporary Supernormal GrowthFirst evaluate the years of supernormal growth and then use the DDM to compute the remaining years at a sustainable rateSuppose a 14% required rate of return with the following dividend growth pattern DividendYear Growth Rate1-3 25%4-6 20%7-9 15%10 on 9%11-2The Value of the Stock (See Exhibit 11.3)Valuation with Temporary Supernormal Growth933393338233733633523433322)14.1()09.14(.)09.1()15.1()20.1()25.1(00.214.1)15.1()20.1()25.1(00.214.1)15.1()20.1()25.1(00.214.1)15.1()20.1()25.1(00.214.1)20.1()25.1(00.214.1)20.1()25.1(00.214.1)20.1()25.1(00.214.1)25.1(00.214.1)25.1(00.214.1)25.1(00.2-+++++++++=iV11-3Exhibit 11.311-4Present Value of Operating Free Cash FlowsDerive the value of the total firm by discounting the total operating cash flows prior to the payment of interest to the debt-holdersThen subtract the value of debt to arrive at an estimate of the value of the equitySimilar to the DDM, we can haveWe have use a constant rate foreverWe can assume several different rates of growth for OCF, like the supernormal 11-5...
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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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Valuation with Temporary Supernormal Growth - 11-1Valuation...

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