Valution of Common Stocks.pdf

# The equity stock of amulya corporation is currently

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The equity stock of Amulya Corporation is currently selling for Rs.1200 per share. The dividend expected next is Rs.25.00. The investors' required rate of return on this stock is 12 percent. Assume that the constant growth model applies to Amulya Corporation. What is the expected growth rate of Amulya Corporation? Soln: 9.92%

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The current dividend on an equity share of Omega Limited is Rs.8.00 on an earnings per share of Rs. 30.00. Assume that the dividend per share will grow at the rate of 20 percent per year for the next 5 years. Thereafter, the growth rate is expected to fall and stabilise at 12 percent. Investors require a return of 15 percent from Omega’s equity shares. What is the intrinsic value of Omega’s equity share?
Solution g 1 = 20 %, g 2 = 12 %, n = 5 yrs , r = 15%, D 1 = 8 (1.20) = Rs. 9.60 Using 2-stage growth formula; Price = Rs. 415.02

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4-5 Valuing a Business Valuing a Business or Project Usually computed as discounted value of FCF to valuation horizon (H) Valuation horizon sometimes called terminal value and calculated like PVGO H H H H r r r r ) 1 ( PV ) 1 ( FCF ... ) 1 ( FCF ) 1 ( FCF PV 2 2 1 1 + + + + + + + + =