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Amos LimGordon Growth more suitable for mature firms, as there is an assumption that the firm will grow at a constant growth rate (and therefore that earnings will grow at a constant rate)

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Amos LimPV = 1 / 1.1 + 1.05 / (1.1)^2 + (1.1 + 20) / (1.1)^3 = 17.629.. 17.63

Amos LimDone

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Amos LimKs = 0.03 + 0.06 (1.2) = 0.102Value = (1 + 0.05)(2) / (0.102 - 0.05) = 40.384.. $40.4

Undervalued - therefore buy

Amos LimDone

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Amos LimKp = KsKp = 0.03 + 0.06 (1.2) = 0.102

2 / 0.102 = 19.61

Amos LimDone

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Amos LimKs = D1 / P0 + g = 2(1.05) / 24 - 0.05 = 0.1375

Amos LimDone

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Amos Limg = Ks - D1 / P0 = 0.03 + 1.2(0.06) - 2(1.05)/24 = 0.0145

Note that D1 = 2(1.05) is used to back out the implied growth rate, even though the growth rate is exactly what we are calculating.

Amos LimDone

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Amos LimP0 = E1 / Ks + PVGOPVGO = 80 - 5 / 0.1 = 30

P/E = 80 / 5 = 16Dividing by E throughout, we getP0 / E1 = 1 / Ks + PVGO / E130 / 5 = 6 attributable to PVGO

*note that E = E1 as we assume no growth

Amos LimDone

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Amos Lim2*1.15^3 * 1.04 / (0.1 - 0.04) = 52.7236.. 52.7

(2*1.15)/1.1 + (2*1.15^2)/(1.1^2) + (2*1.15^3 + 52.7) / (1.1^3) = 46.174.. 46.2

Amos Lim

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Amos Lim3 (1+0.06) / (0.1 - 0.06) + 3 (5) (0.2 - 0.06) / (0.1 - 0.06) = 132

Amos LimDone

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Amos Lim3 methods of estimating growth rates

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Amos Limg = 0.6 * 0.05 * 1.5 * 2 = 0.09

Amos LimDone

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