{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Valuation with Temporary Supernormal Growth

Valuation with Temporary Supernormal Growth - Valuation...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
11-1 Valuation with Temporary Supernormal Growth First evaluate the years of supernormal growth and then use the DDM to compute the remaining years at a sustainable rate Suppose a 14% required rate of return with the following dividend growth pattern Dividend Year Growth Rate 1-3 25% 4-6 20% 7-9 15% 10 on 9%
Image of page 1

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

View Full Document Right Arrow Icon
11-2 The Value of the Stock (See Exhibit 11.3) Valuation with Temporary Supernormal Growth 9 3 3 3 9 3 3 3 8 2 3 3 7 3 3 6 3 3 5 2 3 4 3 3 3 2 2 ) 14 . 1 ( ) 09 . 14 (. ) 09 . 1 ( ) 15 . 1 ( ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 15 . 1 ( ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 15 . 1 ( ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 15 . 1 ( ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 20 . 1 ( ) 25 . 1 ( 00 . 2 14 . 1 ) 25 . 1 ( 00 . 2 14 . 1 ) 25 . 1 ( 00 . 2 14 . 1 ) 25 . 1 ( 00 . 2 - + + + + + + + + + = i V
Image of page 2
11-3 Exhibit 11.3
Image of page 3

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

View Full Document Right Arrow Icon
11-4 Present Value of Operating Free Cash Flows Derive the value of the total firm by discounting the total operating cash flows prior to the payment of interest to the debt-holders Then subtract the value of debt to arrive at an estimate of the value of the equity Similar to the DDM, we can have We have use a constant rate forever We can assume several different rates of growth for OCF, like the supernormal dividend growth model
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    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.

    Student Picture

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

  • Left Quote Icon

    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.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    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.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern