Chapter 02

# Chapter 02 - Share value and anticipated dividends Year 1...

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Unformatted text preview: Share value and anticipated dividends Year 1 anticipated dividend 3 Growth rate of dividends 10% Cost of equity 15% Share value 56.95 &amp;lt;-- =NPV(B5,C10:C76) Share value using formula 60.00 Anticipated Year dividend 1 3.00 &amp;lt;-- =B3 2 3.30 &amp;lt;-- =C10*(1+\$B\$4) 3 3.63 &amp;lt;-- =C11*(1+\$B\$4) 4 3.99 5 4.39 6 4.83 7 5.31 8 5.85 9 6.43 10 7.07 11 7.78 12 8.56 13 9.42 14 10.36 15 11.39 16 12.53 17 13.78 18 15.16 19 16.68 20 18.35 21 20.18 22 22.20 23 24.42 24 26.86 25 29.55 26 32.50 27 35.75 28 39.33 29 43.26 30 47.59 31 52.35 32 57.58 33 63.34 34 69.68 35 76.64 36 84.31 37 92.74 38 102.01 39 112.21 40 123.43 41 135.78 42 149.36 43 164.29 44 180.72 45 198.79 46 218.67 47 240.54 48 264.59 49 291.05 50 320.16 51 352.17 52 387.39 53 426.13 54 468.74 55 515.62 56 567.18 57 623.90 58 686.28 59 754.91 60 830.40 61 913.44 62 1004.79 63 1105.27 64 1215.80 65 1337.37 66 1471.11 67 1618.22 =B3/(B5-B4) A B C D E F 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 Share value and anticipated dividends Year 1 anticipated dividend 3 Growth rate of dividends 18% Cost of equity 15% Share value Formula doesn't work &amp;lt;-- =IF(B5&amp;lt;=B4,&amp;quot;Formula doesn't work&amp;quot;,B3/(B5-B4)) A B C D E 1 2 3 4 5 6 THE GORDON MODEL WITH 2 GROWTH RATES Current dividend 8.00 Dividend valuation 35% PV of years 1-5 60.99 &amp;lt;-- =NPV(B6,B9:B13) 8% 169.35 &amp;lt;-- =B13*(1+B5)/(B6-B5)/(1+B6)^5 Cost of equity 18% Share value 230.33 &amp;lt;-- =SUM(E4:E5) Year 1 10.80 &amp;lt;-- =B3*(1+\$B\$4) 2 14.58 &amp;lt;-- =B9*(1+\$B\$4) 3 19.68 &amp;lt;-- =B10*(1+\$B\$4) 4 26.57 &amp;lt;-- =B11*(1+\$B\$4) 5 35.87 &amp;lt;-- =B12*(1+\$B\$4) 6 38.74 &amp;lt;-- =B13*(1+\$B\$5) 7 41.84 &amp;lt;-- =B14*(1+\$B\$5) 8 45.19 9 48.80 10 52.71 11 56.92 12 61.48 etc. etc. Growth rate g 1 , years 1-5 (&amp;quot;supernormal&amp;quot;) Growth rate g 2 , years 6 - PV of years 6 - A B C D E F G H I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 ABBOTT DIVIDEND HISTORY 1988 0.15 1989 0.17 13.33% &amp;lt;-- =B4/B3-1 1990 0.21 23.53% &amp;lt;-- =B5/B4-1 1991 0.25 19.05% 1992 0.30 20.00% 1993 0.34 13.33% 1994 0.38 11.76% 1995 0.42 10.53% 1996 0.48 14.29% 1997 0.54 12.50% 1998 0.60 11.11% Compound growth, 10 yr. 14.87% &amp;lt;-- =(B13/B3)^(1/10)-1 Compound growth, 5 yr. 12.03% &amp;lt;-- =(B13/B8)^(1/5)-1 Gordon model 49.00 &amp;lt;-- Ending 1998 share price 0.60 &amp;lt;-- 1998 dividend 10-yr. growth 16.28% &amp;lt;-- =B19*(1+C14)/B18+C14 5-yr. growth 13.40% &amp;lt;-- =B19*(1+C15)/B18+C15 Err:502 P D r E A B C D E F 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SP500 Abbott Labs (ABT) Closing Monthly Closing Monthly Date price return Date price return CAPM cost of equity calculations Dec-88 277.72 Dec-88 4.8182 Jan-89 297.47 7.11% Jan-89 4.9369 2.46% Abbott's beta 0.8055 &amp;lt;-- =COVAR(C5:C124,G5:G124)/VARP(C5:C124) Feb-89 288.86-2.89% Feb-89 5.1510 4.34% Mar-89 294.87 2.08% Mar-89 5.5162 7.09% Classical CAPM cost of equity Apr-89 309.64 5.01% Apr-89 5.6023 1.56% Risk premium 8.40% May-89 320.52 3.51%3....
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Chapter 02 - Share value and anticipated dividends Year 1...

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