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2
3
4
5
Expected Dividend
3.00
3.24
3.50
3.00
3.60
Year
5
Expected Price
when sold
92.90
10%
70.00
100
10
(years)
8%
One could get the same result on discounting cash flows after projecting them for a 'long' period - say 255 years, but that clearly
The Present Value is the price that a 'rational' investor can expect to 'buy' or 'sell' the share for.
Growth Model
P0
D0 (1 g ) D0 (1 g ) 2
D0 (1 g )
..........
....
(1 r )
(1 r ) 2
(1 r )
P0
D1
(r g )
Face Value
Maturity
Current Dividend
Expected Growth Rate
100
10
5%
1
10.50
(years)
2
11.03
Year
3
11.58
4
12.16
5
12.76
6
13.40
8%
Rs. 350.00
The Present Value is the price that a 'rational' investor can expect to 'buy' or 'sell' the share for.
Total
10.50
11.03
11.58
12.16
459.46
350.00
7
14.07
8
14.77
----------
Years
Asset Value
Earnings
Investment
1
10.00
1.20
1.20
2
11.20
1.44
1.44
3
12.64
1.73
1.73
4
14.37
2.07
2.07
5
16.44
2.49
2.00
6
18.44
2.81
2.00
7
20.44
3.18
1.59
0.00
20%
0.00
20%
0.00
20%
0.00
20%
0.49
13%
0.81
13%
1.59
6%
Plowback %
ROI
EPS Growth Rate
Expected Return
100%
20%
20%
10%
100%
20%
20%
100%
20%
20%
100%
20%
20%
$0.8
$39.6
1.44
1.73
2.07
80%
16%
13%
71%
18%
13%
50%
12%
6%
$22.4
$23.1
2.49
2.81
3.18
8
22.03
3.37
1.69
9
23.72
3.57
1.79
10
25.50
3.78
1.89
1.68
6%
1.78
6%
1.89
6%
50%
12%
6%
3.37
50%
12%
6%
3.57
50%
12%
6%
3.78
4.01