Question: Constant Growth Model P=D1/(K-g) Example 1 Example 2 Example 3 Example 4 Example 5 Example 6 D1 2.05 4.1 1.25 2.15 6.35 2.25 K 11%
| Constant Growth Model | P=D1/(K-g) | |||||
| Example 1 | Example 2 | Example 3 | Example 4 | Example 5 | Example 6 | |
| D1 | 2.05 | 4.1 | 1.25 | 2.15 | 6.35 | 2.25 |
| K | 11% | 15% | 8% | 18% | 12% | 13% |
| g | 9% | 10% | 5% | 10% | 5% | 8% |
| P= | 0.041 | 0.205 | 0.0375 | 0.172 | 0.4445 | 0.1125 |
| Calculating D1 = | (1+g) * D0 | |||||
| D0 | 2.25 | 3.75 | 1.25 | 1.5 | 4.25 | 2 |
| D1 | 2.43 | 4.125 | 1.3125 | 1.65 | 4.4625 | 2.16 |
| K | 13% | 15% | 8% | 18% | 12% | 13% |
| g | 8% | 10% | 5% | 10% | 5% | 8% |
| P= | 0.1215 | 0.20625 | 0.039375 | 0.132 | 0.312375 | 0.108 |
| Zero Growth Model | P=Do/K | |||||
| D0 | 1.5 | 5 | 2 | |||
| K | 15% | 5% | 10% | |||
| P= | 10 | 100 | 20 | |||
| P/E Ratio Model | Stock Price = Estimated EPS x Expected P/E | |||||
| EPS growth | 20% | 15% | 10% | 25% | 10% | |
| Last Years EPS | $ 2.25 | $ 3.00 | $ 1.75 | $ 0.25 | $ 4.10 | |
| Expected P/E ratio | 5 | 20 | 15 | 10 | 28 | |
| Estimated EPS | ? | ? | ? | ? | ? | |
| Stock Price= | ? | ? | ? | ? | ? | |
| CAPM | RRR= RFR + (Beta x (Market Return - RFR)) | |||||
| Risk Free Rate | 5.5% | 3.5% | 2.5% | 4.5% | 5.5% | |
| BETA | 1.30 | 2.00 | 1.25 | 2.50 | 0.75 | |
| Market Return | 15% | 13% | 14% | 11% | 10% | |
| Risk Free Rate | 5.5% | 3.5% | 2.5% | 4.5% | 5.5% | |
| RRR | 17.85% | 22.50% | 16.88% | 20.75% | 17.13% | |
Solve for estimated EPS and stock price.
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