Chapter 7: equity valuation part 3 formulas for common shares Flashcards
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
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
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
What is the expected dividend rate on a share calculation
D1 / Po
what does g represent
expected capital gains yield or growth rate
How do you estimate the value of growth opportunities
PVGO = selling price - expected EPS / RRR
PVGO = pv of growth opportunities
estimate common growth ddms
add more from my page 4
how do you find the sustainable growth rate
g = b x ROE
b = firms retention ratio
= 1 - firms dividend payout ratio
How do you calculate the retention ratio and dividned payout ratio
add
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
What is the multiple stage growth DDM calculator method
add
how do you calculate price using DDM
dividends expected in 1 year / (required rate - growth)
How do you calculate growth using DDM
g = (dividend expected / current dividend) - 1
how do you calculate current dividend using ddm
dividend expected / (growth rate + 1)
How do you calculate required return using DDM
(dividend epxpectedy1 / price) + growth rate
x 100
