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    Common Stock Valuation

    Uploaded by

    Deep Anjarlekar
    The document discusses common stock valuation for Bob's Rawhide Company. It provides inputs like expected earnings per share of ₹1.25, dividend payout ratio of 65%, and return on equity of 11%. Using these inputs, it calculates a constant growth rate of 3.85% and estimates the value of the stock to be ₹19.58 using the constant growth discounted cash flow model. A table is also presented showing how the estimated stock price changes as the assumed return on equity rises from 10-30%.

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    Common Stock Valuation

    Uploaded by

    Deep Anjarlekar
    38 views10 pages
    The document discusses common stock valuation for Bob's Rawhide Company. It provides inputs like expected earnings per share of ₹1.25, dividend payout ratio of 65%, and return on equity of 11%. Using these inputs, it calculates a constant growth rate of 3.85% and estimates the value of the stock to be ₹19.58 using the constant growth discounted cash flow model. A table is also presented showing how the estimated stock price changes as the assumed return on equity rises from 10-30%.

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    The document discusses common stock valuation for Bob's Rawhide Company. It provides inputs like expected earnings per share of ₹1.25, dividend payout ratio of 65%, and return on equity of 11%. Using these inputs, it calculates a constant growth rate of 3.85% and estimates the value of the stock to be ₹19.58 using the constant growth discounted cash flow model. A table is also presented showing how the estimated stock price changes as the assumed return on equity rises from 10-30%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    38 views10 pages

    Common Stock Valuation

    Uploaded by

    Deep Anjarlekar
    The document discusses common stock valuation for Bob's Rawhide Company. It provides inputs like expected earnings per share of ₹1.25, dividend payout ratio of 65%, and return on equity of 11%. Using these inputs, it calculates a constant growth rate of 3.85% and estimates the value of the stock to be ₹19.58 using the constant growth discounted cash flow model. A table is also presented showing how the estimated stock price changes as the assumed return on equity rises from 10-30%.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    You are on page 1of 10

    P06: Common Stock Valuation

    Particulars Inputs ROE Growth Rate


    Name of the Company Bob's Rawhide Company 10.00%
    Expected Earning per Share (EPS) ₹ 1.25 11.00%
    Dividend Payout Ratio (DPR) 65.00% 12.00%
    Return on Equity (ROE) 11.00% 13.00%
    Required rate of Return (r) 8.00% 14.00%
    15.00%
    Bob's Rawhide Company 16.00%
    A. Growth Rate 3.85% 17.00%
    18.00%
    B. Value without growth ₹ 15.63 19.00%
    Value of Growth Opportunities ₹ 3.95 20.00%
    Value of the Stock ₹ 19.58 21.00%
    22.00%
    D. Constant Growth DDM Value ₹ 19.58 23.00%
    24.00%
    25.00%
    26.00%
    27.00%
    28.00%
    29.00%
    30.00%
    Value
    Stock Prices as ROE rises
    ₹-
    ₹ -200.00
    ₹ -400.00
    ₹ -600.00
    ₹ -800.00
    ₹ -1,000.00
    ₹ -1,200.00
    ₹ -1,400.00
    ₹ -1,600.00
    ₹ -1,800.00
    ₹ -2,000.00
    10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
    % % % % % % % % % % % % % % % % % % % % %

    --> Model Break point (Ke=g)


    Autonomous Vehicles, Inc.
    Free Cashflow Forecast (value in $)
    Particulars 2017 2018 2019 2020
    Depreciation 30,375.00 42,525.00 54,675.00
    EBIT 253,125.00 293,625.00 334,125.00
    Investment in Operating Assets 70,500.00 51,000.00 22,500.00
    NOPAT 164,531.25 190,856.25 217,181.25 -
    Operating Cash Flow after Tax 194,906.25 233,381.25 271,856.25 -
    Free Cash Flow 124,406.25 182,381.25 249,356.25 266,811.19

    INPUTS
    Tax Rate 35.00%
    Current Market Value of Debt $ 900,000.00
    Non-Operating Asstes (Marketable Securities) $ 75,000.00
    Common Share Outstanding 500000 shares
    WACC (Ke) 10.00%
    FCF growth rate after 2019 7.00%
    OUTPUTS
    PV of FCF $ 7,133,143.08
    Value of Firm $ 7,208,143.08
    Value of Equity $ 6,308,143.08
    Value per share $ 12.62

    FCF in 2017 without new products 100000


    FCF Growth rate 7.00%

    PV of FCF $ 3,333,333.33
    Value of Firm $ 3,408,333.33
    Value of Equity $ 2,508,333.33
    Value per share $ 5.02
    2021 2022

    285,487.97 305,472.13
    P06: Common Stock Valuation

    Inputs
    Stock Price $ 30.00 Growth Rate
    Current Dividend $ 1.25 0.00
    Constant Growth rate 3.00% 0.01
    Rapid Growth rate 12.00% 0.02
    Transition Growth Rate 8.00% 0.03
    Rapid Growth period 3 years 0.04
    Transition Growth period 5 years 0.05
    Required rate of return (Ke) 9.00% 0.06
    Model to be used Single-Stage Growth 0.07
    0.08
    0.09
    Valuation Comments 0.10
    Single-Stage Growth $ 21.46 Undervalued Buy 0.11
    0.12
    0.13
    0.14
    0.15
    0.16
    0.17
    0.18
    0.19
    0.2
    Data Table
    single stage growth raate
    Groth RateChart Titl
    vs Single
    1
    1
    0.9
    0.9
    0.8
    0.8
    0.7
    0.7
    0.6
    0.6
    0.5
    0.5
    0.4
    0.4
    0.3
    0.3
    0.2
    0.2
    #DIV/0! 0.1
    0.1
    0
    0
    00 01 02 03 04 05 06 07 08 09 10 11
    00..00 00..01 00..02 00..03 00..04 00..05 00..06 00..07 00..08 00..09 00..10 00..11

    Growth Rate vs
    12

    10

    0
    0.00 0.05 0.10

    Growth rate vs
    12

    10

    0
    0.00 0.05 0.10
    4

    0
    0.00 0.05 0.10

    Growth Rate vs
    12

    10

    0
    0.00 0.05 0.10
    Groth RateChart TitleStage Value
    vs Single

    11 022 033 044 055 066 077 088 099 100 111 122 133 144 155 166 177 188 199 200
    00..0 00..0 00..0 00..0 00..0 00..0 00..0 00..0 00..1 00..1 00..1 00..1 00..1 00..1 00..1 00..1 00..1 00..1 00..2

    Growth Rate vs 2 Stage

    0.05 0.10 0.15 0.20 0.25

    Growth rate vs 3 Stage

    0.05 0.10 0.15 0.20 0.25


    0.05 0.10 0.15 0.20 0.25

    Growth Rate vs 4 Stage

    0.05 0.10 0.15 0.20 0.25


    WORK AREA
    Single-Stage Growth
    Two-Stage Growth
    Three-Stage Growth
    H - Model

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