Chapter 7: equity valuation part 3 formulas for common shares Flashcards Preview

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Flashcards in Chapter 7: equity valuation part 3 formulas for common shares Deck (15)
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1

determine share price for a common share using DDM if selling after one year

P0 = D1 / (Kc - g)
or in otherwords

dividend _ selling price / (1 + required rate) = share price

2

using the constant growth DDM how do you determine the selling price

selling price = current dividends (1 + growth ate) / RRR- growth rate

Kc must be greater than g

the expected growth rate must be expected to be the same indefinitely

3

estimate the required rate of return using DDM

Kc = D1 / Po + g

Kc = RRR
D1 = estimate dividend at end of year 1
Po= market rate

4

What is the expected dividend rate on a share calculation

D1 / Po

5

what does g represent

expected capital gains yield or growth rate

6

How do you estimate the value of growth opportunities

PVGO = selling price - expected EPS / RRR

PVGO = pv of growth opportunities

7

estimate common growth ddms

add more from my page 4

8

how do you find the sustainable growth rate

g = b x ROE

b = firms retention ratio
= 1 - firms dividend payout ratio

9

How do you calculate the retention ratio and dividned payout ratio

add

10

how do you estimate a firms sustainable growth using the DuPont system

g = b x ROE

ROE - net profit margin x turnover ratio x leverage ratio

payout ratio - DP / EPS
b = - firms div payout ratio

11

What is the multiple stage growth DDM calculator method

add

12

how do you calculate price using DDM

dividends expected in 1 year / (required rate - growth)

13

How do you calculate growth using DDM

g = (dividend expected / current dividend) - 1

14

how do you calculate current dividend using ddm

dividend expected / (growth rate + 1)

15

How do you calculate required return using DDM

(dividend epxpectedy1 / price) + growth rate

x 100