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Unformatted text preview: s I: R. J. Hawkins Econ 136: Financial Economics 9/ 21 Gordon Growth Model Example: Con Ed
Consolidated Edison (NYSE: ED) in May 2011 (Damodaran, 2012) Assume the following in perpetuity
An expected ROE of 9.79%.
An expected payout ratio of 64% (= $2.22 / $3.47 )
An expected retention ratio of 36% (= 1 - 0.64).
An expected growth rate of 3.52% (= 0.36 x 9.79%).
Use Gordon Growth model for value per share:
V0 = D0 (1 + g )
$2.22 × (1.0352)
(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/ 21 Two-Stage DDM Example: Proctor & Gamble
(NYSE: PG) High Growth Stage (Damodaran, 2012) Background Information
PG reported earnings of $12.736 B in earnings for 2010.
Paid out 49.74% of these earnings as dividends.
On a per share basis: earnings = $3.82 and dividends = $1.91.
Use CAPM for cost of equity capital
The risk-free rate was 3.50%.
The β for PG was 0.9.
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This note was uploaded on 01/23/2014 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.
- Fall '08