22 10352 5745 rs g 0075 035 the stock traded

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Unformatted text preview: 36 x 9.79%). Use Gordon Growth model for value per share: V0 = D0 (1 + g ) $2.22 × (1.0352) = = $57.45 (rs − g ) (0.075 − .035) The stock traded around $53.50 in May of 2011: it is slightly under valued. Equities I: R. J. Hawkins Econ 136: Financial Economics 10/ 20 Gordon Growth Model Example: Total SA (Damodaran, 2012) Background Information Volatile income, but high dividend payout ratio: Year 2007 2008 Net Income 13,181 10,590 Dividends 4,959 5,408 NB All entries in EUR MM. 2009 8,447 5,354 2010 Average 10,571 10,697 5,357 5,270 Payout ratio = 49.27% Use CAPM for cost of equity capital The β for Total SA was 0.9. The risk-free rate was 3.25% The market equity risk premium was 5.50% E ( ri ) = rf + β [ E ( rm ) − rf ] E (rTotal SA ) = 3.25% + 0.9 [5.5%] = 8.2% Equities I: R. J. Hawkins Econ 136: Financial Economics 11/ 20 Gordon Growth Model Example: Total SA (Damodaran, 2012) Use Gordon Growth model for value per share: Assume a stable growth rate of 2% (just above inflation). V0 = D0 (1 + g ) EUR5, 270 × (1.02) = = EUR...
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