Andreas Park PRO
Professor of Finance at UofT
Trading Case:
EV2
The quick and dirty on EV2
New symbol?
What's notable about the stock?
BOXX
- same idea as EV1, except earnings grow
- required rate depends of risk-free:
\[r=r_f+11\%\] - growth in dividends:
\[g=\frac{\text{this year's dividends}}{\text{last year's dividends}}-1\] - payout rate is \(60\%\)
What do you have to do?
- same as EV1: build an EXCEL model for the fundamental value and follow updates
Background on Theory
- With growing dividends, the Gordon Growth model applies:
\[P=\frac{EPS}{r-g}\cdot \text{\% payout}.\] - Where does \(r\) come from? \(\to\) CAPM!
\[r_i=r_f+\beta(r_m-r_f)\] - Here: \[\beta(r_m-r_f)=11\%\]
- You need to determine \(r,g,\) expected \(EPS\)
MGT435: EV2
By Andreas Park
