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Relative PE and Relative Growth Rates: Market Growth Scenarios

The document contains two charts and accompanying text that explore the relationship between relative PE ratios and growth rates/risk. The first chart models how a firm's relative PE ratio changes as its growth rate varies from 0-300% of the market's growth rate under scenarios where the market grows at 5%, 10%, or 15%. The second chart models how a firm's relative PE ratio changes as its beta varies from 0.25-2 under scenarios where its beta either stays the same or drops to 1 during the stable phase. Accompanying tables provide the numerical inputs and outputs for the charts.

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minhthuc203
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13 views4 pages

Relative PE and Relative Growth Rates: Market Growth Scenarios

The document contains two charts and accompanying text that explore the relationship between relative PE ratios and growth rates/risk. The first chart models how a firm's relative PE ratio changes as its growth rate varies from 0-300% of the market's growth rate under scenarios where the market grows at 5%, 10%, or 15%. The second chart models how a firm's relative PE ratio changes as its beta varies from 0.25-2 under scenarios where its beta either stays the same or drops to 1 during the stable phase. Accompanying tables provide the numerical inputs and outputs for the charts.

Uploaded by

minhthuc203
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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RelGrowth

Relative PE and Relative Growth Rates: Market Growth Scenarios

3.50

3.00

Relative PE

2.50

2.00
Market g=5%
Market g=10%
Market g=15%

1.50

1.00

0.50

0.00

0%

50%

100%

150%

200%

Firm's Growth Rate/Market Growth Rate

Page 1

250%

300%

RelRisk

Relative PE and Relative Risk: Stable Beta Scenarios


5

4.5

3.5

3
Beta stays at current level

2.5

Beta drops to 1 in stable phase

1.5

0.5

0
0.25

0.5

0.75

1.25

1.5

Page 2

1.75

Inputs

Firm
Expected Growth
10%
Length of Growth
5
Payout Ratio
30%
Payout Ratio
50%
Beta
2
Riskfree Rate
Cost of Equity
0.17
PE =
8.329904231

Market
10%
5
30%
50%
1
6%
0.115
10.44592155

Relative growth
Market g=5% Market g=10%
0%
0.80
0.64
50%
0.89
0.80
100%
1.00
1.00
150%
1.12
1.23
200%
1.24
1.51
250%
1.38
1.84
300%
1.54
2.22

Output
Relative PE = 0.79743125
Beta of Firm Beta stays at current
Beta drops
levelto 1 in stable phase
0.25
4.32
1.2
0.5
2.1
1.12
0.75
1.37
1.06
1
1
1
1.25
0.78
0.94
1.5
0.64
0.89
1.75
0.53
0.84
2
0.46
0.8

Page 3

Inputs

Market g=15%
0.52
0.73
1
1.35
1.8
2.36
3.05

eta drops to 1 in stable phase

Page 4

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