24Lecture24

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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) = = $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/ 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. The marke...
View Full Document

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.

Ask a homework question - tutors are online