最新AssetValuationEquityInvestments名師精編資料匯編

1、十三 Asset Valuation: Equity Investments1.A: An Introduction to Security Valuationa: Explain the top-down approach and its underlying logic to the security valuation process.Step 1General economic influences:fiscal policy: tax cuts encourage spending and taxincreases discourage spending. monetary poli

2、cy: a restrictive policy reduces the availability of funds and causes interest rates to rise putting upward pressures on costs. In addition to fiscal and monetary actions you must also consider the economic consequences of political changes around the globe. From a global portfolio perspective you h

3、ave to consider the economic events in other countries.Step 2Industry influences:The next step in the valuation process is to identify those industriesthat will prosper or suffer during the time frame of your economic forecast. You shouldconsider the cyclical nature of the industry under study. Some

4、 industries are cyclical, some arecontra cyclical and some are non-cyclical. Finally, your analysis should also account forforeign economic shifts. In general, an industry s prospects within the global businessenvironment determine how well or poorly individual firms in the industry do.Step 3Company

5、 Analysis:After determining the industry s outlook you should compare theindividual firm s performance within the entire industry using financial ratios and cash flowvalues. Your goal is to identify the best company in a promising industry. This involves not onlyexamining the firm s past perfo mance

6、, but also its future prospects.b: Calculate the value of a preferred stock, assuming a perpetual dividend.Valuation of preferred stockis easy since the dividend is fixed and the preferred s life isinfinite (it s a perpetuity) appears in thepperuright hand corner. Again, the only problem isdetermini

7、ng k P. Because of default risk factors, the preferred s discount)Pshouldrate(k beabove the firm s bond rate (kB). But since dividends paid by one corporation to anothercorporation are 80% taxexempt, preferred yields are below the firm s highest-grade bondyields.preferred value=D+D+.+DD(1 +k p )1(1

8、+ k p )2=(1 + k p ) °k pExample: value the preferred of a company that pays a $5 annual dividend. The firm s bondsare currently yielding 8.5% and preferred shares are selling to yield fifty basis points below thefirm s bond yield.Step 1: determine the discount rate. 8.5% - .5% = 8%Step 2:value

9、the preferred. D/kP = $5/.08 = $62.50c: Calculate the value of a common stock, using the dividend discount model (DDM) for both a one-year holding period and a multiple-year holding period.Example: what is the value of a stock that last year paid a $1 dividend, if you think: next year dividend will

10、be 10% higher; the stock will be selling for $25 at year end; the risk free rate of interest is 5%, the market return is 10% and the stock s beta is 1.2? sStep 1:solve for the discount rate. ke = .05 + (1.2)(.1 - .05) = 11%.Step 2:find the PV of the future dividend. FV = D1 = $1(1.1) = $1.10; n = 1;

11、 i=11; PV= $.99.Step 3:find the PV of the future price: FV = $25, n = 1; i = 11; PV = $22.52.Step 4: sum steps 2 and 3. The current value based on the investor $22.52 = $23.51. s expectations is $.99 +Modeling a stock's value with a multiple-year holding period just expands the one-year approach

12、 to forecasting two or three years' worth of dividends and the terminal price of the stock at the end of the period.d: Calculate the value of a common stock, using the infinite period DDM.There is one multiperiod model that uses a different approach though.D0 (1 + g) 1+D 0(1 + g) 2+D0 (1 + g) 3D

13、0(1 + g) °°Stock Value =(1 + k e )1(1 + k e)2(1 + k e)3+.+(1 + k e ) °This is the infinite period model. The infinite period model assumes that the growth rate (g) individends between years is constant. So next year s dividend1isjustDD 0 (1 + g) and thesecond year s dividend is just D

14、 0 (1 + g) 2 . The equation using this assumption looks like what appears above.This equation simplifies to the infinite period dividend discount model.D0 (1 + g)D 1Projected Stock Value P 0=ke - gk e- gNote: this model is also called theconstant growth DDMin the literature.e: Calculate the value of

15、 a common stock for a company experiencing temporary supernormal growth.The infinite period DDM doesn't work with growth companies. Growth companies are firms that currently have the ability to earn rates of return on investments that are currently above their required rates of return. The infin

16、ite period DDM assumes the dividend stream grows at a constant rate forever while growth companies have high growth rates in the early years that level out at some future time. The high early or supernormal growth rates will also generally exceed the required rate of return. Since the assumptions (c

17、onstant g and k>g) don't hold, the infinite period DDM cannot be used to value growth companies.A more realistic approach to supernormal growth companies and companies that don't pay dividends is to combine the multiperiod model with the infinite period model.In the temporary supernormal

18、growth model you must:1.Project the size and duration of the supernormal dividend growth rate, (gsupernormal )2.Forecastwhat the normalgrowth rate will be at theend of the supernormal growthperiod, (gfuture normal )3.Determine the discount rate, kef: Show how to use the DDM to develop an earnings mu

19、ltiplier model and explain the factors in the DDM that affect a stock's price-to-earnings (P/E) ratio.Example:A firm has an expected dividend payout ratio of 60%, a required rate of return of11%, and an expected dividend growth rate of 5%. What is the firm s expected P/E ratio? If you expect nex

20、t year s earnings (E) to be $3.50, what is the value of the stock today? 1Step 1: estimate the P/E ratio: .6/(.11 - .05) = 10Step 2: calculate the value estimate: (E1 )(P/Eestimate ) = ($3.50)(10) = $35.00Note 1:the main determinant of the size of the P/E ratio is the difference between k and g.Note

21、 2:the relevant P/E ratio you should study is the expected (P0/E 1 ) ratio not the historical(P0 /E 0) ratioNote 3: the P/E ratio is just a restatement of the DDM. So anything that influences stock prices through the DDM will also have the same effect on the P/E ratio.g: Explain the relationship amo

22、ng the nominal risk-free rate, the risk-free rate, and the expected rate of inflation.Nominal risk free rate = (1 + real risk-free rate)(1 + expected inflation) - 1Example: the real rate is 4 percent and the expected inflation rate is 3 percent.The nominal risk-free rate = (1.04)(1.03)1 = 1.07121 =

23、7.12%.The nominal rate is frequently estimated by summing the real rate and the inflation expectation.Estimate of the nominal risk-free rate = 4% + 3% = 7%h: Discuss the risk factors to be assessed in determining a country risk premium for use in estimating the required return for foreign securities

24、.Business risk is a function of the variability of economic activity within a country and the average operating leverage used by firms within the country.Firms in different countries assume significantly differentfinancial risk.Countries with small or inactive capital markets offer significantThe un

25、certainty in exchange rates causesexchange rate risk.liquidity risk.Finally,country riskarises from unexpected economic and political events.i: Estimate the dividend growth rate, given the components of return on equity and incorporating the retention rate.Note : Why does g equal (RR)(ROE) for a sta

26、ble but expanding company? Assume ROE is constant and that new funds come solely from earnings retention. What is the firm's growth rate given that the firm earns 10% on equity of $100 and pays out 40% of earnings in dividends?Earnings in period 1:Retention in period 1:(.10)($100) = $10. Dividen

27、d in period 1: (.40)( $10) = $ 4.($10)(1-.4) = $ 6 so Earnings in period 2: (.10)($100) + (.10)($6) =$10.60.Dividend in period 2:(.40)($10.60) = $4.24.Analysis of growth - $4)/$4 = 6%.: earnings growth = ($10.60 - $10)/$10 = 6% and dividend growth = ($4.24Analysis of stock price: assume k = 10%.Pric

28、e at the beginning of period 1 = D Price at the beginning of period 2 = D1 /(k - g) = $4/(.10 - .06) = $100.2 /(k - g) = $4.24/(.10 - .06) = $106The stock's price will grow at a 6 percent rate just like earnings and dividends.What caused this growth? Earnings on the new retained earnings. Growth

29、 = (ROE)(Retention rate) = (.1)(1 - .4) = 6%.j: Describe a process for developing estimated inputs to be used in the DDM, including the required rate of return and expected growth rate of dividends.Estimating the inputs: the valuation models are dominated by the inputs k and g, so it is important th

30、at you understand how they are estimated and what they mean.The required rate of return (k)is influenced by:1.The economys real risk capital in the country.-free rate, which is determined by the supply and demand for2.The expected rate of inflation in the country, which will cause investors to deman

31、d higher nominal rates of interest to compensate for their potential loss of purchasing power.3.The risk premium is associated with the uncertainty of the returns expected from the investment.Since different investments have different patterns of return and different guarantees, the risk premiums di

32、ffer. The required rate of return is a combination of the nominal real rate of return and the risk premium. The risk premium can be determined by reference to a risk premium curve or by using the capital asset pricing model:k=R nominal risk free rate+P risk premiumor k=R nominal risk free rate+(beta

33、)(R market -R nominal risk free rate)Expected growth rate of dividends:assuming past investments are stable and earnings arecalculated to allow for maintenance of past earnings power, then the firm'searnings growthrate (g) can be defined as the firm's earnings plowback orretention rate(RR) t

34、imes the returnon the equity (ROE) portion of new investments.1.B: Stock-Market Analysisa: Calculate the earnings per share (EPS) of a stock market series.EPS = (per share sales estimate)(EBDIT %) - D - I(1 - T)Example: sales estimate is $90 per share; EBDIT is 20% of sales; depreciation is $8 per share:inte