Scribd
Upload
65 views10 pages

Common Stock Valuation

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%.

Uploaded by

Deep Anjarlekar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
65 views10 pages

Common Stock Valuation

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%.

Uploaded by

Deep Anjarlekar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 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

You might also like