Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
(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?
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement