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Author: cnaylor Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41316  
Subject: Re: Poll: Quick Quiz Date: 7/26/2002 12:26 PM
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(86.74 * 1.05) * (1 - (.05/.17))) /(.15 - .05)

= 7.4 * 86.75 = 642.86

Which brought back to the present gets you 39.28 for every dollar of current earnings or a mutliple of 39X to get a 15% return into infinity. If I only wanted a 12% return, I could pay 56X times earnings.



howardroark, If I read this correctly, the formula you used to calculate the terminal value translates as follows:

Present value of ((Future value of stage earnings * Stage 2 growth rate) * (1 – (Stage 2 growth rate/Stage 2 return on equity))/(Required return – Stage 2 growth rate))

When I run these numbers for a 12% return, I get 95X earnings. For the 6% value, I get 2,016X. What am I missing? Did you intentionally use the 15% rate to get back to present value?
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