Equity valuation

Question 1

What is the formula for P0 if the dividend is expected to grow at different growth rates g1 and g2

Answer 1

P0 = Σ (Div(1+g1)^t / (1+r)^t) + (1/(1+r)^t) x (Divt+1/r-g2)

Question 2

How to find earnings next year

Answer 2

Earnings this year + Retained earnings this year x Return on retained earnings

Question 3

What is g (growth rate) formula

Answer 3

retention ratio x return on retained earnings

Question 4

What happens to future value earnings if the firm makes negative NPVGO investments

Answer 4

they can fall

Question 5

What happens to future dividends if the firm makes negative NPVGO investments

Answer 5

can fall or grow

Question 6

What is the payout ratio

Answer 6

Ratio of dividends / earnings

Question 7

Formulas for PE ratio

Answer 7

Price per share / EPS = 1/r + NPVGO/EPS

Question 8

2 Problems with PE ratio

Answer 8

A large PE ratio also could be due to no earnings or little earnings.
The PE ratio is negatively related to discount rate and equity risk.