Question

Constant Growth Model			P=D1/(K-g)
	Example 1	Example 2	Example 3	Example 4	Example 5	Example 6
D1	2.05	4.1	1.25	2.15	6.35	2.25
K	11%	15%	8%	18%	12%	13%
g	9%	10%	5%	10%	5%	8%
P=	0.041	0.205	0.0375	0.172	0.4445	0.1125
Calculating D1      =		(1+g) * D0
D0	2.25	3.75	1.25	1.5	4.25	2
D1	2.43	4.125	1.3125	1.65	4.4625	2.16
K	13%	15%	8%	18%	12%	13%
g	8%	10%	5%	10%	5%	8%
P=	0.1215	0.20625	0.039375	0.132	0.312375	0.108
Zero Growth Model		P=Do/K
D0	1.5	5	2
K	15%	5%	10%
P=	10	100	20
P/E Ratio Model		Stock Price = Estimated EPS x Expected P/E
EPS growth	20%	15%	10%	25%	10%
Last Years EPS	$           2.25	$           3.00	$           1.75	$           0.25	$           4.10
Expected P/E ratio	5	20	15	10	28
Estimated EPS	?	?	?	?	?
Stock Price=	?	?	?	?	?
CAPM	RRR= RFR + (Beta x (Market Return - RFR))
Risk Free Rate	5.5%	3.5%	2.5%	4.5%	5.5%
BETA	1.30	2.00	1.25	2.50	0.75
Market Return	15%	13%	14%	11%	10%
Risk Free Rate	5.5%	3.5%	2.5%	4.5%	5.5%
RRR	17.85%	22.50%	16.88%	20.75%	17.13%

Solve for estimated EPS and stock price.

Answer 1

example 1

estimated EPS=2.25×1.20=2.7

estimated stock price

=(2.25* 1.20)×5=13.5

example 2

Estimated eps=3×1.15=3.45

estimated stock price=3.45×20=69

example 3

estimated EPS=1.75×1.1=1.925

Estimated stock price=1.925×15=28.875

example 4

estimated EPS=0.25×1.25=0.3125

estimated stock price=0.3125×10=3.125

example 5

estimated stock price=4.10×1.1=4.51

estimated stock price=4.51×28=126.28.