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Formulating non-constant growth share value

Discussion in 'Business, Investment and Economics' started by MattRNR1, Jul 1, 2017.

  1. MattRNR1

    MattRNR1

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    G’day Aussie Stock Forums

    I’m not sure if I’m posting in the appropriate place here, but I’m hoping someone might be able to help me out.

    I’m an MBA student in Adelaide and have been assigned a non-constant growth share valuation case study. My problem is probably almost embarrassingly simple for the majority of this forums regulars...

    I have formulated the question as I see it and hopefully my figures are correct however a number of other infinitely more experienced students have got different figures to mine… which is making me second guess my interpretation of the problem.

    I was hoping someone may be able to have a look at the question and my figures on the attached spreadsheet and let me know if they make sense or indeed if I have made some ridiculous oversight, before I submit it and watch my GPA plummet.

    Any assistance would be greatly appreciated

    Regards

    MattRNR
     

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  2. craft

    craft

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    Your Gordon dividend discount formula calculations are correct.

    Your rate of return calculations are incorrect.

    Interested to see how you answer part B. You're not actually given enough information to be able to determine the correct answer. But then I suspect their definition of correct would be different to mine.
     
  3. MattRNR1

    MattRNR1

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    Much obliged craft

    I will review the information I have on rate of return and try to work out where I went wrong... I'm thinking I may approach Part B from an explicitly mathematical perspective, which will be necessarily surface level... with any luck that will be 'correct' enough for them...

    Thank you again for your help

    Regards

    MattRNR1
     
  4. craft

    craft

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    Hi Matt

    For rate of return
    Add the PV of the non standard growth dividends to the initial $3 purchase price to get the denominator for the return calculation. You can do a cross check with an irr calculations using the Gordon growth figure as your terminal sell price. The answer is around 17.7% (you'll need to work out the 4 decimal places :))
     
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